Startups: The Ecosystem and How They're Funded · Part 14 of 19

Valuation Basics: Pre-Money and Post-Money

Two numbers, one investment, and the arithmetic that connects them.

A priced equity round rests on two numbers that are easy to confuse. They describe two different moments in the same transaction.

• Pre-money valuation: what the company is worth immediately before the new investment is added.
• Post-money valuation: what the company is worth immediately after, which is the pre-money valuation plus the money just invested.

A worked example

Suppose a company and an investor agree the company is worth $8,000,000 before any new money comes in, and the investor puts in $2,000,000.

The investor's ownership percentage is their investment divided by the post-money valuation, because ownership is measured against what the company is worth including the money that just bought that ownership.

That 20% comes from newly issued shares, which is why a priced round dilutes everyone who held shares before it closed. Founders and earlier investors own the same number of shares as before, and that share count now represents a smaller slice of a company with more total shares outstanding. The next article follows that dilution across an entire cap table, from founding through several rounds.