Pre Money vs Post Money
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Pre-Money vs. Post-Money Valuation: How to Calculate Both
Pre-money valuation is what a company is worth before an investment, and post-money valuation is what it is worth after the investment is added. The difference decides how much of the company an investor owns. This page gives the formulas, worked examples, and the traps that catch founders.
- Post-money valuation = pre-money valuation + the new investment.
- An investor’s ownership = the investment divided by the post-money valuation.
- The same headline valuation can mean very different things depending on whether it is quoted pre-money or post-money.
- An option pool counted inside the pre-money valuation lowers what founders effectively receive. Always compare the effective pre-money value.
The two definitions
Pre-money valuation: the value of the company immediately before the new investment is added.
Post-money valuation: the value of the company immediately after the new investment is added.
The investor’s money goes into the company, so it raises the company’s value by exactly the amount invested. If a company is worth $8,000,000 before a $2,000,000 investment, it is worth $10,000,000 afterward. That is the whole idea. The confusion comes from which number people quote when they say “we raised at a $10 million valuation.” Always ask whether that figure is pre-money or post-money. For the broader context, see Startup Valuation.
The formulas
| You want to find | Formula |
|---|---|
| Post-money valuation | Pre-money valuation + investment |
| Pre-money valuation | Post-money valuation − investment |
| Investor ownership | Investment ÷ post-money valuation |
| Existing owners’ share after the round | Pre-money valuation ÷ post-money valuation, or 1 − investor ownership |
| Pre-money from an agreed ownership percentage | (Investment ÷ ownership percentage) − investment |
These five lines solve most valuation questions a founder will meet.
A basic worked example
The numbers below are illustrative and simplified.
An investor offers $2,000,000 at an $8,000,000 pre-money valuation.
Post-money valuation = $8,000,000 + $2,000,000 = $10,000,000.
Investor ownership = $2,000,000 ÷ $10,000,000 = 20%.
Existing owners keep $8,000,000 ÷ $10,000,000 = 80%.
Now compare what happens if the same offer is described as a $8,000,000 post-money valuation. The pre-money value is then $6,000,000, and the investor owns $2,000,000 ÷ $8,000,000 = 25%. The same $8,000,000 headline costs the founders five more percentage points of the company. This is why the label matters.
From valuation to price per share
In a priced round, valuation becomes a price per share. The price is the pre-money valuation divided by the number of fully diluted shares before the round. See Fully Diluted Ownership for what counts as a fully diluted share.
Continuing the example, suppose there are 8,000,000 fully diluted shares before the round.
Price per share = $8,000,000 ÷ 8,000,000 = $1.00.
The investor’s $2,000,000 buys $2,000,000 ÷ $1.00 = 2,000,000 new shares.
Total shares after the round = 10,000,000. The investor owns 2,000,000 ÷ 10,000,000 = 20%, which matches the result above.
A capitalization table tracks these share counts. See Pre-Money Cap Table and Post-Money Cap Table.
The option pool trap: effective pre-money valuation
Investors often require that a pool of shares be reserved for future employee hires, and they ask that this pool be created or enlarged inside the pre-money valuation. This is known as the option pool shuffle. The headline pre-money number stays the same, but the existing owners bear all the dilution from the new pool. See Option Pools and the option pool shuffle.
Same offer: $2,000,000 at an $8,000,000 pre-money valuation, so post-money is $10,000,000 and the investor owns 20%.
The investor also requires a new option pool equal to 10% of the post-money company, created in the pre-money.
Ownership after the round: investor 20%, new pool 10%, existing owners 100% − 20% − 10% = 70%.
Effective pre-money valuation for the existing owners = 70% × $10,000,000 = $7,000,000, not the $8,000,000 headline.
The pool is not wasted, since it is used to attract the team the company needs, but founders should compare offers on the effective pre-money value. The mechanics of resizing a pool are in Option Pool Expansion.
Pre-money vs. post-money, side by side
| Feature | Pre-money valuation | Post-money valuation |
|---|---|---|
| Measures | Company value before new money | Company value after new money |
| Includes the new investment? | No | Yes |
| Used to set | The price per share | The investor’s ownership percentage |
| Who focuses on it | Founders, who want it high | Investors, who calculate their stake from it |
| Typical question it answers | “What is my company worth today?” | “What share does this check buy?” |
Pre-money and post-money in SAFEs
The same distinction appears in SAFEs and convertible notes through the valuation cap. A post-money SAFE sets the cap as a post-money value that already includes all SAFEs, which makes each investor’s ownership easy to calculate. An older pre-money SAFE sets the cap before the SAFE money, so ownership depends on how many other SAFEs are raised. The differences are covered in Pre-Money vs. Post-Money SAFE, with the conversion math in SAFE Conversion Math.
Common mistakes
- Not asking which valuation is meant. A quoted number without a label can hide a five-point difference in ownership.
- Forgetting the new money. Post-money includes the investment. A common error is dividing the investment by the pre-money value.
- Ignoring the option pool. Comparing headline pre-money numbers across offers misses differences in pool size.
- Counting only shares issued. Use fully diluted shares, which include options and convertible instruments.
- Forgetting earlier SAFEs and notes. Instruments that convert in the round also take ownership. See Dilution Explained and Ownership After a Funding Round.
Frequently asked questions
Pre-money valuation is the company’s value before the investment, and post-money valuation is the value after the investment is added. Post-money equals pre-money plus the investment.
Divide the investment by the post-money valuation. A $2,000,000 investment at a $10,000,000 post-money valuation buys 20%.
It varies, which is why you should always ask. Founders usually focus on pre-money because it reflects the company’s value before dilution. Investors calculate from post-money.
Yes. When a pool is created inside the pre-money valuation, existing owners effectively receive a lower value than the headline pre-money number suggests.
Subtract the investment. A $10,000,000 post-money valuation with a $2,000,000 investment is an $8,000,000 pre-money valuation.
Where to go next in valuation
Built from primary documents and institutional references: Y Combinator SAFE documents, NVCA model legal documents, SEC EDGAR filings, and published benchmarks from Carta. Worked examples are simplified and illustrative. This page is educational and is not legal, tax, or investment advice.
Evergreen Policy: Reviewed quarterly. Changes to SAFE versions, NVCA documents, or relevant law trigger a same-week update. For live market data, see Startup Funding Watch.
Author: Erwin Castro, Founder and Publisher, The CODEW
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