What are the differences between pre-money and post-money valuation in terms of founder-friendliness?

Pre-money valuation refers to the value of a company before it goes public or receives external funding or financing. It determines the value of the company's shares and the equity stake a new investor will receive. Post-money valuation, on the other hand, includes the external financing and reflects the company's value after the investment. For founders, the implications of these valuations are significant in terms of equity dilution. If the pre-money valuation is high, the founders' equity stake is less diluted when new shares are issued for the investor. Conversely, a lower pre-money valuation means more dilution for the founders. Post-money valuation provides a clearer picture of what the equity structure will look like after the investment, which can be more founder-friendly in terms of understanding and negotiating equity dilution.

Transparent communication with investors can significantly impact the negotiation of equity dilution. It allows both parties to have a clear understanding of the terms and implications of the equity dilution. This can lead to more favorable terms for the founders as they can negotiate from a position of knowledge and understanding. It also builds trust between the founders and investors, which can lead to better long-term relationships and potential for future funding rounds.