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Calculating Pre-Money Valuation for Startup
When the VC is asking what your Pre-Money Valuation is, he's asking what percentage of shares his $200,000 will buy. If you say your company is worth $800K, then after he puts the money in, it will be worth $1M, and he will own 20% of all shares – you'll still own the remainder. So when the VC is asking for a valuation, what he really wants to know is how much of your company he's going to own after he funds you.  Determining your pre-money valuation, then, is a question of negotiation: how much money will you need, how likely are you to require more money later (and thus dilute the VC's shares, or give up more of your own shares), how likely is your business to survive, and how much money will it make if it does survive? It isn't about the actual value of your business right now, as much as it is "how much work has gone into this, and how successful can it be?" The value is going to be a bit higher than you expect, because the work is already done and you can get to market faster than someone else who hasn't started yet. VCs are often looking for long shots – they'll invest in 10 companies, and expect 7 to fail, 2 to be barely-profitable, and the last one to make hilarious amounts of money. A VC doesn't necessarily want 51% of your company (you'll probably lose motivation if you're not in charge), but they'll want as much as they can get otherwise.