How this instrument works
Pre-money valuation is the price the two sides agree the company is worth before a single new dollar arrives. Post-money is that same figure plus the new investment, because the cash itself becomes part of what the company owns the moment the round closes — a wire transfer that lands in the bank account is now company assets, so it belongs in the company's value. This is the number founders, angel investors and venture capitalists argue over on a term sheet, and it is almost always that earlier figure that gets negotiated, since the total afterward is just arithmetic once the starting price and the check size are fixed.
Ownership percentage follows the same logic: divide the new investment by the total after the round closes, not the total before it. A $2,000,000 check into a company worth $8,000,000 before the round buys a stake in a $10,000,000 company, not an $8,000,000 one — the investor's own dollars are part of the denominator they're buying into. Founders who divide by the earlier, smaller total instead consistently overstate how much of the company they are giving away, a mistake that compounds across several funding rounds.
The instrument does not model option pools, convertible notes, SAFEs, or liquidation preferences, all of which change how a real cap table divides ownership once they convert or vest. It answers one narrow question precisely: given a pre-money number and a check size, what valuation and ownership stake result.
- Enter the agreed Pre-money valuation, $ — the value assigned to the company before the round.
- Enter the New investment amount, $ — the size of the check the investor is writing.
- Read Post-money valuation, $ — the sum, computed instantly.
- Read New investor ownership, % — the exact slice of the company that investment buys.
Worked example — an $8,000,000 startup raising $2,000,000
A company negotiates a pre-money valuation of $8,000,000 and an investor agrees to put in $2,000,000. Post-money valuation is simply $8,000,000 plus $2,000,000, which comes to $10,000,000 — the company is worth that much the instant the wire clears, because the cash itself now sits inside it. Ownership follows from the same two numbers: $2,000,000 divided by that $10,000,000 total, times 100, gives exactly 20%.
That 20% is the investor's stake and the founders' combined stake falls to 80%, before counting any option pool set aside for future hires. Notice what stays fixed and what moves: if the same $2,000,000 check were priced against a company worth $18,000,000 before the round instead, the total afterward becomes $20,000,000 and the ownership bought drops to 10% — identical cash, half the stake, because the price of the company changed, not the size of the check.
Questions
What is the actual difference between pre-money and post-money valuation?
Pre-money is what the company is worth before the new investment arrives; post-money is that figure plus the investment itself. They differ by exactly the size of the check being written, because the invested cash becomes company assets the moment the round closes and is counted in what the company is now worth.
Why divide by post-money and not pre-money to get ownership?
Because the investor is buying a slice of the company as it exists after their cash is inside it, not before. Dividing the investment by pre-money instead overstates the stake purchased — it treats the investor's own cash as if it weren't part of what they're buying into, and the two answers only match when the investment is small relative to the starting valuation.
Does this account for an option pool or convertible notes?
No. Option pools carved out for future hires, and SAFEs or convertible notes converting at the same close, both dilute the simple two-line math shown here — they add more slices to the same pie. This instrument gives the raw two-line arithmetic; a full cap table is needed once those instruments are in play.
Who actually sets the pre-money number in a real negotiation?
Founders and investors negotiate it directly, informed by comparable recent rounds, revenue or user traction, and how much cash the company needs versus how much dilution the founders will accept. Once that starting number and the check size are agreed, everything downstream is no longer negotiable — it is fixed by the formula.
Can a startup's valuation fall between one funding round and the next?
Not with a single straightforward investment, since the total afterward is always the starting valuation plus a positive check, and can only rise. A lower valuation between rounds is a separate event, called a down round, where the next round's starting valuation is set below the prior round's resulting total — a comparison across two separate rounds, not something this single calculation can show.
Is post-money valuation the same as what the company could sell for?
No. Post-money is a negotiated price tied to one specific transaction, often carrying preferred-share terms like liquidation preferences that pay investors before common holders in a sale. It is not an appraisal of fair market value and should not be read as what the business would fetch on the open market.
References
- SEC Investor.gov — Accredited investor definition
- U.S. Small Business Administration — Fund your business
Read this first: This instrument shows arithmetic, not advice. Real offers add fees, taxes and terms that vary by lender and place — verify the figures against your actual paperwork before deciding anything.