Pre-Money vs Post-Money Valuation, With Worked Examples
The same funding round can be described with two different valuations. Here is how to tell them apart, how the share price is set and what the headline number leaves out.
Pre-money valuation is what a startup is worth just before new investors put money in; post-money valuation is that figure plus the new cash. A company valued at $20 million pre-money that raises $5 million has a $25 million post-money valuation, and the new investors own 20%. The headline “valued at” number in funding news is usually the post-money figure.
Both numbers describe the same round. They differ only in whether the new money is counted, and that choice changes how much of the company the investors get.
How do you calculate post-money valuation?
Post-money valuation equals pre-money valuation plus the amount raised. The investors’ ownership equals the amount they invest divided by the post-money valuation.
| Pre-money | New money | Post-money | New investors own | Existing holders keep |
|---|---|---|---|---|
| $8 million | $2 million | $10 million | 20% | 80% |
| $20 million | $5 million | $25 million | 20% | 80% |
| $60 million | $15 million | $75 million | 20% | 80% |
| $100 million | $50 million | $150 million | 33.3% | 66.7% |
The numbers are illustrations, not market data. For real medians by stage, see our guide to how startup funding rounds work.
Why does pre-money vs post-money matter so much?
The same dollar figure produces different ownership depending on which one is meant. A founder who hears “$5 million at $20 million” needs to know whether $20 million is pre or post.
- $5 million at $20 million pre-money: post-money is $25 million, and the investor owns 20%.
- $5 million at $20 million post-money: pre-money is $15 million, and the investor owns 25%.
A five-point difference in ownership can be worth millions in a later sale, which is why term sheets state the basis explicitly.
How is the price per share set?
The price per share equals the pre-money valuation divided by the number of shares outstanding before the round, counted on a fully diluted basis (including options and, usually, the option pool).
A worked example with made-up numbers:
- The company has 8 million fully diluted shares and agrees to a $20 million pre-money valuation.
- Price per share: $20 million divided by 8 million shares equals $2.50.
- The investor puts in $5 million and receives 2 million new shares ($5 million divided by $2.50).
- Shares after the round: 10 million. The investor holds 2 million, or 20%. Post-money valuation is 10 million shares times $2.50, which is $25 million.
A detail that often surprises founders: investors usually ask for a new or larger option pool to be counted in the pre-money share count. That lowers the price per share and means existing holders, not the new investor, absorb the dilution from the pool. The pre-money “headline” stays the same, but the founders’ effective pre-money valuation is lower.
How is a “valued at $X” headline calculated?
A headline valuation multiplies the price per share paid in the latest round by all of the company’s shares, on a fully diluted basis. If investors paid $40 a share and the company has 50 million fully diluted shares, the reported valuation is $2 billion.
That method applies the newest investors’ price to every share, including common stock held by founders and employees. The newest investors bought preferred stock with extra rights, so the price they paid is higher than what a share of common stock is worth on its own. Private companies set a separate, usually lower, value for common stock (the 409A valuation, named after the tax rules in 26 CFR 1.409A-1) when they price employee options.
When a company raises on SAFEs, there may be no price per share at all. News reports then cite the post-money valuation cap, which is a ceiling on the conversion price rather than a valuation agreed for the whole company. Our explainer on what a SAFE is covers the difference.
Why can a headline valuation mislead?
The headline number assumes every share is worth the same, but preferred stock is paid first in a sale. That ordering, the liquidation preference, can leave common stock with much less than the headline implies.
A simplified example: investors put $100 million into a company at a $500 million post-money valuation, with a 1x non-participating liquidation preference. Two years later the company is sold for $80 million.
- Preferred holders are entitled to their $100 million back first. The sale brings in only $80 million, so they take all of it.
- Common holders, including employees with options, receive nothing, even though the last round “valued” the company at $500 million.
Other terms push in the same direction. Participating preferred takes its money back and then shares in the rest. Preferences above 1x return a multiple of the investment first. Guaranteed returns in an IPO (“ratchets”) protect late investors if the IPO price is low. None of these appear in a headline valuation, and they are why employees should read the preference stack before counting on their equity, as explained in our guide to stock options in an acquisition.
Bottom line
To compare two funding announcements, convert both to the same basis: post-money valuation and the percentage sold. Then ask what the investors received besides shares, because a high valuation bought with a 2x preference or participation rights is not the same deal as the same valuation with a plain 1x preference. Holders of startup equity can ask the company for the preference terms; tax or legal questions about a specific grant go to a tax professional or attorney.
FAQ
Is the valuation in funding news pre-money or post-money?
Usually post-money, because it is calculated from the price per share times all shares after the round. When a company or investor gives a pre-money figure, reports typically say so.
Does a higher valuation mean employees’ options are worth more?
Not directly. Option exercise prices and tax values are based on the company’s 409A valuation of common stock, which is normally lower than the preferred price behind the headline.
What is a down round?
A down round sells shares at a lower price per share than the previous round. It dilutes existing holders more than a flat or higher round and can trigger anti-dilution protection for earlier preferred investors.
How do I find a private company’s valuation?
Only the company and its investors know it for certain. A Form D shows the amount sold, not the price, so published valuations come from company announcements or attributed reports.
