Valuations & Cap Tables
Pre-money, post-money, dilution, and who owns what
Pre-Money vs Post-Money
Pre-money valuation is what the company is worth before the investment. Post-money valuation equals pre-money plus the investment amount. If a company has a $10M pre-money valuation and raises $2M, the post-money is $12M — and the investor owns $2M/$12M = 16.7% of the company. This simple formula drives every equity deal in venture capital.
How Dilution Works
Every time a company raises money by issuing new shares, existing shareholders get diluted — their percentage ownership decreases even though their number of shares stays the same. If you own 20% before a round and the round creates 25% new ownership, your 20% becomes 15% (20% x 0.75). Over a typical startup lifecycle from seed to exit, founders might go from 100% to 10-15% ownership.
Reading a Cap Table
A capitalization table lists every shareholder, the number and type of shares they hold, and their percentage ownership. It typically includes founders, employees (option pool), angel investors, and institutional investors across each round. A clean cap table clearly shows who owns what on both a fully-diluted basis (all options exercised) and an issued-shares basis.
Option Pools
VCs almost always require companies to set aside an option pool — typically 10-20% of pre-money shares — reserved for future employee hires. This pool comes out of the founders' ownership, not the investors', and is factored into the pre-money valuation. A '$10M pre-money with a 15% option pool' is actually a lower effective valuation for founders than it appears.