Fundraising
What is the difference between pre-money and post-money valuation?
Quick Answer
Pre-money valuation is a company's value before new investment; post-money is the value after. Post-Money = Pre-Money + Investment Amount. A $10M pre-money with $2M invested = $12M post-money, giving the investor 16.7% ownership.
Detailed Answer
Pre-money and post-money valuations determine how much of the company an investor receives for their investment.
Formulas: - Post-Money Valuation = Pre-Money Valuation + New Investment - Investor Ownership % = Investment ÷ Post-Money Valuation - Price Per Share = Pre-Money Valuation ÷ Pre-Money Shares Outstanding
Example: - Pre-money valuation: $8M - Investment: $2M - Post-money: $10M - Investor gets: $2M ÷ $10M = 20%
Important nuance — **Option pool shuffle:** VCs often require the option pool to be created (or topped up) before pricing, which comes out of the pre-money. If a $10M pre-money includes a 15% option pool top-up, the effective pre-money for existing shareholders is lower.
Pre-money with option pool: The real founder dilution is the investment dilution PLUS the option pool dilution.
SAFE/Note complication: Post-money SAFEs (introduced by YC in 2018) define the cap as post-money, making dilution calculations clearer but often resulting in more dilution for founders if multiple SAFEs are issued.
Related Questions
What is dilution in startup funding?
Dilution is the reduction in an existing shareholder's ownership percentage when a company issues new shares, typically during fundraising rounds. Founders typically experience 15-25% dilution per funding round.
What is a cap table?
A cap table (capitalization table) is a spreadsheet or document that shows a company's equity ownership structure — who owns what percentage, including founders, investors, employees with options, and any convertible instruments.
How much equity should you give investors?
Standard dilution is 15-25% per funding round. Seed rounds typically sell 15-20% equity, Series A sells 20-30%. Founders should retain at least 50% through Series A to maintain control and motivation.
What should be in a startup pitch deck?
A VC pitch deck should be 10-15 slides covering: problem, solution, market size, business model, traction, team, competition, financials, the ask, and use of funds. Keep it visual, concise, and story-driven.
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