
Ask HN: What's the purpose of pre- and post-money valuations - minnusox
In an investment scenario, the two terms pre- and post-money valuation mean different things. The definition of these terms is clear, however I wonder what the purpose is and why the term &quot;pre-money valuation&quot; even exists.<p>Example:<p>A startup raises 500 000 USD giving up 50%. The pre-money valuation is 500 000 USD. The post-money valuation is 1 000 000 USD.<p>However, considering the meaning of the word &quot;valuation&quot; this is not really true, because for both the pre- and post-money valuation the true &quot;valuation&quot; of the company was always determined to be 1 000 000. One side merely decided to sell half of the shares for the price of their worth.<p>What is the purpose of pre-money valuations, given that they don&#x27;t reflect the real valuation of a company?
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ealexhudson
Pre-money determines the value of the business before investment; the post-
money valuation takes into account the investment.

Your example isn't quite right. $500k USD at 50% equity does imply a $1M pre-
money valuation. However, if we're agreed that 50% of the business is worth
$500k, then immediately after the investment the value of the business is 100%
of the equity (which we agreed is $1M) plus new assets (we've just put $500k
in). So the post-money valuation is $1.5M.

