Since the pre-money valuation reflects the valuation of the company as a stand alone entity, this value is reflective of all of the value creating and detracting factors. As a result, the pre-money value inherently represents of the underlying value of the company (products, customer relationships, brand, etc) minus the value of outstanding obligations, such as debt. As a result, the pre-money valuation is net of debt.
However, it’s worth noting that debt that is set to convert to equity during the investment round will typically not be treated as debt and subtracted from the pre-money valuation. Rather since the debt will convert to equity it is treated as an equity investment, as it will impact the capital table going forward.
