Pre-money valuation is what a company is worth immediately before a new round of funding gets added to it, the starting point investors and founders negotiate around before the new cash comes in.
Add the new money raised to the pre-money valuation and you get the post-money valuation. A company valued at $8.5M pre-money raising $1.5M ends up at $10M post-money, with the new investors owning 15% of the company.
Founders sometimes anchor on the pre-money number because it feels like the figure that reflects the company's actual worth, but the two numbers are two sides of the same math. What actually determines dilution is the raise amount relative to the post-money figure, not the pre-money number on its own.
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