Glossary
Pre-Money vs Post-Money Valuation: What Is the Difference?
Updated · Team Fonda
Short answer
Pre-money valuation is what your company is valued at just before an investment. Post-money valuation is the pre-money valuation plus the new money. The investor's ownership is the investment divided by the post-money valuation, so which one a number refers to changes how much of the company you sell.
Key takeaways
- Post-money valuation = pre-money valuation + investment.
- Investor ownership = investment / post-money valuation.
- The same headline number costs you more of the company if it is post-money than if it is pre-money.
- Always ask "is that pre or post?" when someone quotes a valuation.
What the two terms mean in plain words
A valuation is the price tag an investor and a founder agree to put on the whole company for the purpose of a funding round. There are two moments at which you can read that price tag. Pre-money is the value before the investor's cash goes in. Post-money is the value straight after, with the cash now sitting in the company's bank account.
Nothing about the business changes between the two moments except the bank balance. The gap between them is always exactly the amount invested.
How to calculate pre-money and post-money valuation
Formulas
Post-money = pre-money + investment. Investor ownership = investment / post-money. Price per share = pre-money / number of shares before the round.
The share count in the last formula is normally the fully diluted count. That means every share that exists plus every share that has been promised, such as employee options. Enter your own figures in the free pre-money and post-money valuation calculator.
A worked example: the same number, two outcomes
These figures are illustrative. Say an investor tells you: "I will put in $500,000 at a $2,000,000 valuation." Here is what that means under each reading.
| If $2,000,000 is pre-money | If $2,000,000 is post-money | |
|---|---|---|
| Pre-money valuation | $2,000,000 | $1,500,000 |
| Investment | $500,000 | $500,000 |
| Post-money valuation | $2,500,000 | $2,000,000 |
| Investor ownership | 20% | 25% |
| Founders keep | 80% | 75% |
Example only, with no option pool or earlier investors.
One word moves five points of ownership. If the company had 8,000,000 shares before the round, the price per share would be $0.25 in the first case and about $0.19 in the second.
Where each one shows up
- Priced rounds: a term sheet normally states the pre-money valuation and the amount, and the post-money follows from them.
- SAFEs: the valuation cap on a SAFE can be written as pre-money or post-money. A post-money cap fixes the investor's percentage at the time you sign.
- Your records: after the round, the post-money valuation and the new share count go on your cap table.
Why it matters for a first-time founder
You meet these terms the first time anyone offers you money for shares, whether that is at pre-seed from a friend or angel or later from a fund. They decide your equity dilution, which is the part of the company you give up.
A valuation at this stage is a negotiated figure, not a measurement. It reflects the evidence you bring: the size of the market, proof that customers want the product and early revenue. Fonda's journey has you gather that evidence in the Validate phase and turn it into a business plan well before the Raise step, and the free TAM SAM SOM calculator is a quick way to size the market side of the argument.
Common mistakes
- Not asking which one is meant. Confirm in writing whether a quoted valuation is pre-money or post-money.
- Dividing by the wrong number. Ownership is the investment divided by post-money, never by pre-money. $500,000 on $2,000,000 pre-money is 20%, not 25%.
- Forgetting the option pool. If a pool for future hires is created inside the pre-money valuation, the founders pay for it and the effective pre-money is lower than the headline.
- Leaving out SAFEs and notes. Earlier SAFEs and convertible notes turn into shares at the round and take their slice too.
- Chasing the highest valuation. A price you cannot grow into makes the next round harder. Fair terms with an investor who helps can be worth more.
Frequently asked questions
Which matters more, pre-money or post-money valuation?
They are two views of the same deal, so neither matters more. Post-money is the one you use to work out ownership. Pre-money is the one you use to work out the price per share.
How do you get pre-money from post-money?
Subtract the investment. If the post-money valuation is $3,000,000 and the round is $600,000, the pre-money valuation is $2,400,000.
Who decides the pre-money valuation?
The founders and the lead investor negotiate it. There is no official formula for an early-stage company. The figure depends on your progress, the market, how many investors are interested and what similar companies have raised at.
Does a higher post-money valuation mean my shares are worth more cash?
On paper, yes, but it is not cash you can spend. Startup shares are hard to sell, and the paper value only becomes real if the company is sold or goes public at that value or more.