Post-Money vs Pre-Money Valuation
Two different numbers. One benefits you. The other benefits investors. Here's the math and what it means for your negotiation.
Quick Definitions
Pre-money valuation: Your company's worth before new investment. Used to calculate how much of the company investors will own.
Post-money valuation: Pre-money + investment amount. This is the company's total value after funds are received.
Your Series A investor says they'll value your company at $10M. Great! Except: is that pre-money or post-money? That $10M question can change your equity ownership by 20%. Most founders don't know the difference.
Pre-money is what the company is worth before the new investor puts their money in. Post-money is the total value after. It sounds like the same thing. It's not. The math works out very differently for founders.
The Core Formula
Post-money valuation = Pre-money valuation + Investment amount. The investor's ownership % = Investment ÷ Post-money.
Let's Work Through the Math
You have a $10M pre-money valuation. An investor is putting in $3M. What happens?
Post-Money Math
Pre-money valuation: $10M
Plus: New investment: +$3M
Post-money valuation: $13M
The investor gets: $3M ÷ $13M = 23.08% of the company
You (founder) retain: (100% - 23.08%) = 76.92%
This is how most Series A rounds are actually quoted. The investor puts in $3M, you get valued at $10M pre-money, everyone knows the post-money is $13M.
Now Let's Try Pre-Money Negotiation
Same investor, same $3M, but they insist on a "$10M post-money valuation." Now the math is different:
Post-money valuation (target): $10M
Minus: New investment: -$3M
Pre-money valuation: $7M
The investor gets: $3M ÷ $10M = 30% of the company
You (founder) retain: (100% - 30%) = 70%
Same $10M number. Same $3M investment. But you went from 76.92% to 70%. That's 7% of your company gone just because of the definition.
Always Ask
When an investor quotes a valuation, immediately ask: "Is that pre-money or post-money?" Don't assume. The difference can be worth millions at exit.
SAFEs and Conversion Posts
SAFEs (Simple Agreements for Future Equity) are popular for seed rounds. They specify a post-money valuation cap but don't convert until a priced round (Series A).
When your Series A is priced, SAFEs convert at either the Series A valuation or the SAFE cap, whichever is lower. The tricky part: if your Series A is quoted as pre-money, SAFE holders do better. If it's quoted as post-money, they do worse (relative to the negotiated terms).
SAFE Conversion Example
You raised a Seed round on a $5M post-money SAFE cap. Now Series A: Investor wants $3M at a $15M valuation. Pre-money or post-money?
If stated as $15M pre-money:
- SAFE cap is $5M post-money, but the Series A post-money is $18M ($15M pre + $3M investment)
- SAFE converts at 5M ÷ 18M = 27.78% (the cap)
- Series A investor gets: 3M ÷ 18M = 16.67%
- Founders get diluted less
If stated as $15M post-money:
- SAFE cap is $5M post-money, Series A is $15M post-money
- SAFE converts at 5M ÷ 15M = 33.33%
- Series A investor gets: 3M ÷ 15M = 20%
- Founders get diluted more
That 3% difference in how the valuation is quoted changes your dilution by ~5 points. For multiple SAFE holders, the impact compounds.
Pro Tip: Be Explicit in SAFEs
If you're writing a SAFE, specify: "This is a post-money SAFE cap. If the Series A is priced, it will be quoted as pre-money. SAFE converts at [pre-money calculation]." Avoid ambiguity.
How Investors Use This in Negotiation
Smart investors know that most founders don't understand the difference. They use it strategically:
Tactic 1: Quote Pre-Money First
Investor says: "We'll do $10M pre-money." Founders think this is good value. When they realize post-money is $13M (investor gets 23%), they're already emotionally invested in the $10M number.
Tactic 2: Match to Market Comps
Investor says: "Similar-stage companies are at $5M pre-money." They're using industry comps (usually pre-money) to anchor down. You counter with your own comps. Get the same apples-to-apples metric.
Tactic 3: Vary Definition Mid-Deal
Deal sheet says $10M. Term sheet later clarifies "post-money." You assumed pre-money. By then, you're far into diligence. Push back in writing from the beginning.
Framework: What to Negotiate For
You can't change the formula, but you can control how it's applied. Here's what matters:
Define It in Writing
Don't rely on verbal agreement. Get pre-money vs post-money specified in your term sheet before you negotiate valuation numbers.
Think in Post-Money
When evaluating investor ownership, always calculate back to post-money. It's easier to compare apples-to-apples.
Model SAFE Conversions
If you have SAFEs, run scenarios showing how your Series A valuation (pre vs post) affects SAFE holder dilution.
Compare Effective Ownership
Don't get hung up on whether it's $10M pre or post. Compare what % the investor owns. That's what matters.
Mistakes Founders Make
1. Comparing Pre to Post
Investor A quotes $10M pre-money, Investor B quotes $12M post-money. You think B is better. You need to convert both to the same metric ($13M post vs $12M post in this case). A is better.
2. Not Asking the Question
You hear "$20M valuation" and assume everyone means the same thing. You don't. Ask. Then get it in writing. It takes 30 seconds and can save you 7% of your company.
3. Not Calculating Your Actual Ownership
You get caught up in the valuation number and forget to calculate: investor % = new money ÷ post-money. Then work backwards to see what % you retain. Do this math before you agree to anything.
4. Not Considering Option Pool Impact
Your ownership math assumes the option pool is fixed. But if the investor insists on a 15% pool and you only budgeted for 10%, that option pool increase reduces your ownership more than the valuation discussion does.
5. Not Planning for the Next Round
Your Series A is $10M pre. But if Series B is quoted post-money, will SAFE holders get confused? Build a model now that shows what happens in both cases when you raise Series B.
Your Negotiation Checklist
Get Valuation Definition in Writing
Term sheet must say: "$X pre-money valuation" or "$X post-money valuation." Get investor to confirm in writing if they ever say it differently.
Calculate and Confirm Investor Ownership
Before you agree, calculate: investor % = investment size ÷ post-money valuation. Write this number in the term sheet. Both parties confirm this is correct.
Model Cap Table After Round
Create a fully diluted cap table showing: all founders, investor, SAFEs, option pool, everyone's %. If you have SAFEs, show how they convert. Share with investor. Confirm it's correct.
Plan for Series B Now
Model what happens if Series B uses the opposite definition (post-money instead of pre, or vice versa). Show this to your Series A investor. Does everyone understand?
Get Legal Review
Have your lawyer confirm the definition is correct before you sign. They should also flag any SAFE conversion issues.
Pro Tip: Use Both Metrics
After you agree on terms, always reference both pre-money and post-money in your documents. Example: "$10M pre-money valuation ($13M post-money), investor receives 23.08% for $3M investment." This eliminates confusion.
Confused About Your Valuation Terms?
Eagle Rock CFO helps founders understand their term sheets, model cap tables, and negotiate valuations with confidence.
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