Pre-Money vs Post-Money Valuation Explained
In venture financing, valuation is expressed as either Pre-Money or Post-Money. The core equation connecting them is straightforward:
\[\text{Post-Money Valuation} = \text{Pre-Money Valuation} + \text{Investment Amount}\]Why the distinction matters: - Pre-Money Valuation: Measures the worth of existing company assets and IP before fresh capital. - Investor Ownership %: Calculated using Post-Money Valuation, not Pre-Money ($\frac{\text{Investment}}{\text{Post-Money}}$). - Share Price: Calculated using Pre-Money Valuation divided by existing shares.
Core Venture Capital Equations
\[\text{Post-Money Valuation } (V_{post}) = V_{pre} + I\] \[\text{Share Price } (P) = \frac{V_{pre}}{S_{existing}}\] \[\text{New Shares Issued } (S_{new}) = \frac{I}{P}\] \[\text{Investor Ownership (\%)} = \left( \frac{I}{V_{post}} \right) \times 100\] \[\text{Existing Founder Ownership (\%)} = \left( \frac{V_{pre}}{V_{post}} \right) \times 100\]Example Round Calculation Table ($8M Pre + $2M Raised)
| Component | Valuation / Capital | Share Count | Ownership % |
|---|---|---|---|
| Pre-Money Valuation | $8,000,000 | 8,000,000 shares | 80.0% (Pre-Round) |
| New Investment Raised | $2,000,000 | 2,000,000 new shares | 20.0% (Investor) |
| Post-Money Valuation | $10,000,000 | 10,000,000 total shares | 100.0% |
| Share Price | $1.00 / share | — | — |
Step-by-Step Guide to Calculating Post-Money Valuation
- Enter Agreed Pre-Money Valuation: Input the company valuation before investment.
- Enter Investment Amount: Input fresh capital raised.
- Input Existing Shares: Input total shares outstanding before the round.
- View Share Price & Share Issuance: Observe exact price per share and new shares issued to investors.
Frequently Asked Questions
What is the difference between pre-money and post-money valuation?
Pre-money valuation is the agreed value of the startup before adding new investment capital. Post-money valuation is the company value immediately after receiving the investment: Post-Money = Pre-Money + Investment.
How do you calculate investor equity ownership percentage?
Investor Ownership % = (Investment Amount ÷ Post-Money Valuation) × 100.
How is share price determined in a priced round?
Share Price = Pre-Money Valuation ÷ Existing Pre-Round Fully Diluted Shares.
How many new shares are issued in a funding round?
New Shares Issued = Investment Amount ÷ Share Price.
Why is agreeing on pre-money valuation critical for founders?
A higher pre-money valuation directly increases share price, minimizing the number of new shares issued and reducing founder equity dilution.
Is my valuation data stored anywhere?
No. All calculations run strictly inside your web browser.