Pre-money

Pre-money is a financing term that refers to a method of valuing a company in connection with the company’s plans to raise capital from outside investors. It is related to the term post-money, and the difference between the two will be explained below. The term pre-money typically is explained to potential investors in a term sheet provided to those investors. The term sheet provides a brief background about the company, its owners, and capital structure, and it further sets forth the terms of the equity being offered to those investors. One of the key terms in a term sheet is the valuation of the company, which can either be pre-money or post-money. As an example, if a company and a potential investor agree that a company is worth $10 million and the investor will invest $2 million in the company, then, if the $10 million valuation of the company is considered to be a pre-money valuation, the company is valued at $10 million before the investor invests. As a result, after the investment, the company will be worth $12 million. However, if the $10 million valuation of the company is considered to be a post-money valuation, then the company is worth $8 million at the time the investment is offered to the investor and will be worth $10 million after the investor invests.