The valuation of a company prior to a new round of investment capital being injected.
Why it matters: Pre-money valuation determines exactly how much equity founders give up for the investment. It is the core point of negotiation in a term sheet.
In practice: An investor offers $2M on an $8M pre-money valuation. The post-money valuation becomes $10M, meaning the investor owns 20% ($2M / $10M).