Business valuation conducted before the injection of capital from outsite equity investors.

Equity investors, such as angels and venture capitalists, provide investment capital in exchange for a share of business ownership. A key question addressed by the pre-money business valuation is this:

For example, assume that you determine that your business is worth $1,000,000 before the investment round. Let's say that the investors offer $500,000. Based on your $1,000,000 pre-money business valuation, you will give up a third of the ownership interest in your business to raise this $500,000.

Business owners are well advised to determine what the business is worth before accepting the terms of outside investment. A key consideration is whether you retain the controlling ownership interest after the investment round.

If not, you may end up with an illiquid investment called minority business ownership interest, whose value drops due to discounts for lack of control and marketability.