How to Calculate Pre Money Valuation
Pre-money valuation drives equity dilution. Master calculation for fundraising and investment negotiations.
How the How to Calculate Pre Money Valuation works
Learn valuation methods: VC method, comparables, and scorecard. Calculate pre-money value from post-money and investment amount with dilution analysis.
Pre-money valuation determines founder dilution. This calculator teaches calculation methods critical for fundraising success.
How it works
Tutorial
Pre-money valuation determines how much your company is worth before investors add new capital—it’s the single most important number in fundraising because it directly controls founder dilution. If investors put in $2M at a $8M pre-money valuation, they own 20% post-money ($2M / $10M). But if they invest $2M at $3M pre-money, they own 40%—double the dilution. Understanding pre-money calculation prevents founders from unintentionally giving away their company and helps negotiate favorable terms that preserve meaningful ownership through multiple funding rounds.
Pre-money valuation isn’t arbitrary—it’s calculated using methods like the Venture Capital Method (based on exit projections), comparable company analysis, scorecard method (comparing to similar startups), and Berkus method (value per risk milestone). Learning these techniques helps founders justify valuations credibly and understand investor thinking. A founder saying “We’re worth $15M because we feel that’s fair” gets laughed out of pitch meetings. A founder saying “We’re worth $12-15M based on comps, our traction, and projected exit multiples” demonstrates sophistication that earns respect and better terms.
The Basic Formula
| Method | Formula | Best For |
|---|---|---|
| VC Method | Pre = (Exit Value / ROI Multiple) – Investment | Revenue-stage startups |
| From Post-Money | Pre-Money = Post-Money – Investment Amount | When post agreed first |
| Scorecard | Pre = Avg Comp Value × Weighted Factors | Early-stage comparison |
| Ownership Target | Pre = (Investment / Target %) – Investment | Investor perspective |
Step-by-Step Calculation
Example: SaaS startup raising $3M Series A, projecting $50M exit in 5 years, $2M ARR currently, comparable companies valued at 8-12x ARR
Step 1: Venture Capital Method
| Component | Value | Explanation |
|---|---|---|
| Projected Exit Value | $50M | Year 5 acquisition estimate |
| Investor Target ROI | 10x | Series A investor expectation |
| Terminal Value Needed | $50M | Exit amount |
| Investment Amount | $3M | Capital raising |
| Required Ownership % | ($3M × 10) / $50M = 60% | Ownership for 10x return |
| Post-Money Valuation | $3M / 0.60 | $5.0M |
| Pre-Money (VC Method) | $5.0M – $3M | $2.0M |
Step 2: Comparable Company Method
| Factor | Calculation | Result |
|---|---|---|
| Current ARR | Annual recurring revenue | $2.0M |
| Comparable ARR Multiples | Similar SaaS companies | 8-12x |
| Lower Range (Conservative) | $2M × 8 | $16.0M |
| Upper Range (Optimistic) | $2M × 12 | $24.0M |
| Discount for Stage/Risk | Early stage, reduce 40% | -40% |
| Adjusted Valuation Range | Discounted for risk | $9.6M – $14.4M |
| Pre-Money (Comps) | Midpoint | $12.0M |
Step 3: Negotiate Final Pre-Money
| Method | Pre-Money Value | Dilution @ $3M Raise |
|---|---|---|
| VC Method | $2.0M | 60% (harsh) |
| Comparable Companies | $12.0M | 20% (favorable) |
| Compromise Position | $7.0M | 30% |
| Likely Negotiated Pre | $6-8M | 27-33% |
| Post-Money @ $7M Pre | $7M + $3M | $10M |
| Investor Ownership @ $7M Pre | $3M / $10M | 30% |
| Founders Retain | Remaining ownership | 70% |
What This Means
The VC method suggests brutal $2M pre-money (60% dilution) because investors demanding 10x returns on $3M need 60% ownership to make $30M from a $50M exit. However, comparable company analysis supports $9.6-14.4M valuation based on your $2M ARR and typical 8-12x SaaS multiples (discounted for stage). The final pre-money will likely land at $6-8M through negotiation—founders want comps-based valuation, investors want VC method, and both compromise around $7M pre-money (30% dilution).
At $7M pre-money, raising $3M creates $10M post-money with 30% investor ownership and 70% founder ownership. This is reasonable Series A dilution—more favorable than the 40-50% typical of weaker positions. Understanding both methods helps you negotiate: “Our comps justify $12M, you’re modeling $2M based on aggressive return requirements—let’s meet at $7M reflecting both our traction and your risk.” Never accept the first valuation offered; always support your counter with methodology. The difference between $5M and $8M pre-money is 15 percentage points of ownership—potentially worth millions at exit.
Meet the fastest voice-to-text for professionals
WriteVoice turns your voice into clean, punctuated text that works in any app. Create and ship faster without typing. Your first step was How to Calculate Pre Money Valuation; your next step is instant dictation with WriteVoice.
A blazing-fast voice dictation
Press a hotkey and talk. WriteVoice inserts accurate, formatted text into any app, no context switching
Works in any app
Press one hotkey and speak; your words appear as clean, punctuated text in Slack, Gmail, Docs, Jira, Notion, and VS Code—no context switching, just speed with writevoice
Accurate, multilingual, and smart
97%+ recognition, smart punctuation, and 99+ languages so your ideas land first try, built for teams and pros.
Private by default
Zero retention, audio and text are discarded instantly, with on-device controls so you can dictate sensitive work confidently.