The pre-money valuation refers to the value of a start-up just before a new round of funding. The capital to be invested as part of this funding round is not yet included in this valuation.
It serves as the basis for determining how many shares investors receive in return for their investment and the extent to which the shareholdings of existing shareholders change.
The basic calculation is as follows:
Pre-money valuation + investment amount = post-money valuation
One example:
| Key figure | Amount |
| Pre-money valuation | €4 million |
| New investment | €1 million |
| Post-money valuation | €5 million |
| The new investor’s stake | 20 % |
In this example, the investors invest €1 million and receive 20 per cent of the company in return. Following the funding round, the existing shareholders together retain 80 per cent.
The pre-money valuation therefore has a direct impact on:
- how many shares are issued for an investment
- to what extent the existing shares will be diluted
- what stake new investors will receive
- what the future ownership structure will look like
- what expectations are emerging regarding the start-up’s future development
When determining a pre-money valuation, the following factors are often taken into account:
- Stage of development of the product
- Market size and growth
- Historical turnover and growth rates
- Number and quality of customers
- Technology and Intellectual Property
- Experience of the founding team
- Competitive situation
- comparable funding rounds
Young start-ups, in particular, often do not yet have stable turnover or profits. The valuation is therefore based not only on financial indicators, but also on future prospects, market potential, traction and the outcome of negotiations.
The highest possible pre-money valuation is not automatically advantageous. If the valuation is too low, founders may have to give up too many shares. If it is too high, it may prove difficult in subsequent funding rounds to achieve the expected growth or to justify a further increase in the valuation.
innoWerft helps start-up founders to develop their funding strategy, interpret relevant key figures and gain a better understanding of how different valuations affect equity stakes and the company’s development.