A pre-money valuation refers to how much the equity of a company is worth prior to an investment or financing event and can be a helpful benchmark to quickly determine new investors' ownership stakes.

For example, holding all else equal, if a company is raising $1M at a $3M pre-money valuation, investors in the $1M raise will collectively receive 25% of the company ($1M divided by $3M plus $1M, or 25%). The sum of the value of the pre-money equity ($3M) plus the "new equity" being injected ($1M) is referred to as the post-money valuation ($4M).

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