Pre-money and Post-money Valuation
The monetary value of your company prior to investment in the financing round.
You can arrive at this number by multiplying the total number of fully diluted outstanding shares by the current value of one share, it's determining the current value that's the hard part. In an early stage company this is often a negotiated amount between investors and the company. As the company grows this is commonly done through a 409a, which is the IRS method for determining the fair market value of a share.
The pre-money valuation plus the investment amount.
For example, let's say your pre-money valuation is $4MM and you've raised $1MM in venture capital.
- Your post-money valuation is $5MM = $4MM (pre-money) + $1MM (investment)
- You've sold 20% of your company = $1MM (investment) / $5MM (post-money)