Pre-money vs post-money valuation, explained
The one formula every founder should know before reading a term sheet.
The definitions
Pre-money valuation is what the company is worth before new investment. Post-money is pre-money plus the new money.
Investor ownership = investment ÷ post-money valuation.
A worked example
An investor offers 250,000 for 12%. Post-money = 250,000 ÷ 0.12 ≈ 2,083,333. Pre-money = 2,083,333 − 250,000 ≈ 1,833,333.
If the offer is described as a pre-money price instead, the ownership changes — always confirm which one is meant.
Where the option pool hides
Investors often ask for an employee option pool to be created before the money comes in. That pool dilutes only existing holders, lowering the effective pre-money price. Compare the pool before and after the money side by side.
This guide is general information, not financial or legal advice.