Pre-Money Valuation
What a company is deemed to be worth immediately before new investment arrives.
Pre-money is the agreed value of the business before the round's money is added. Post-money is pre-money plus the investment. A $4M pre-money with a $1M round gives a $5M post-money, and the investor owns 20%.
Investors quote pre-money because it sounds smaller for the same deal. Founders should think in post-money, because that is what determines dilution.
The difference is easy to underestimate. On a $1M round, the gap between a $4M and $5M pre-money is about 3.3 percentage points of ownership — meaningful, and worth confirming explicitly before celebrating a term sheet.