Pre-money valuation is the company's value before new investment; post-money valuation is the value after. The difference is the investment amount. Getting this math wrong is one of the most common and costly founder mistakes.
The Core Formula
Post-money valuation = Pre-money valuation + Investment amount
Investor ownership % = Investment amount ÷ Post-money valuation
Example:
- Pre-money: $8M + Investment: $2M = Post-money: $10M
- Investor ownership: $2M ÷ $10M = 20%
Why This Matters
"We're raising at a $10M valuation" — is that pre-money or post-money?
- Pre-money $10M: Post-money = $12M. Investor owns 16.7%
- Post-money $10M: Pre-money = $8M. Investor owns 20%
The difference is 3.3 percentage points of ownership.
The Option Pool Shuffle
Investors typically require the option pool be created pre-money, diluting founders (not investors). Calculate the "true" pre-money by subtracting the option pool value from the stated pre-money valuation.
Dilution Across Multiple Rounds
- Seed: Raise $1M at $4M post-money → Founder owns 75%
- Series A: Raise $5M at $20M post-money → Founder diluted 25% → owns ~56%
- Series B: Raise $15M at $60M post-money → Founder diluted 25% → owns ~42%
Key Takeaways
- Post-money = Pre-money + Investment. Always clarify which valuation is being quoted.
- Investor ownership = Investment ÷ Post-money valuation.
- The option pool shuffle reduces founder economic ownership — model it carefully.
- Dilution compounds across rounds — model your ownership through Series B and beyond.
- A higher pre-money valuation means less dilution per dollar raised.
Filed under M&A, Partnering & Due Diligence. Working session: Calendly.
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