Pre-Money Valuation

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DEFINITION of 'Pre-Money Valuation'

A slang phrased that refers to the value of a company's stock before it goes public. The term is often used by venture capitalists.

Also known as "pre-money."

BREAKING DOWN 'Pre-Money Valuation'

For example let's say Jim's Fabless Donut Shop is thinking of going public. If management and venture capitalists estimate the company will raise $100 million in the IPO, it is said to have $100 million in pre-money.

Valuing a company's stock before it goes public is a difficult task. When venture capitalists and entrepreneurs talk about pre-money they have to be very careful not to fall into the trap of "counting their chickens before the eggs have hatched" or, in other words, spending money they don't actually have.

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RELATED FAQS
  1. What's the difference between pre-money and post-money?

    The short answer to the question is that they differ in timing of valuation. Both pre-money and post-money are valuation ... Read Full Answer >>
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    The price of a financial asset traded on the market is set by the forces of supply and demand. Newly issued stocks are no ... Read Full Answer >>
  3. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  4. What kind of assets can be traded on a secondary market?

    Virtually all types of financial assets and investing instruments are traded on secondary markets, including stocks, bonds, ... Read Full Answer >>
  5. How do you find the break-even point using a payback period?

    It does not make sense to find the breakeven point using a company's payback period. A company's payback period is concerned ... Read Full Answer >>
  6. What does residual value represent in a private equity investment?

    It is common to see a private equity investment's net asset value, or NAV, referred to as its residual value, since it represents ... Read Full Answer >>

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