Deal Terms & Term Sheets
What is the difference between pre-money and post-money valuation?
Pre-money valuation is what a company is worth before new investment. Post-money is what it's worth after. If you raise $5M at a $20M pre-money valuation, the post-money valuation is $25M and the investor owns 20%.
Valuation in a venture round is always expressed in one of two ways.
**Pre-money valuation** is the company's agreed-upon value before the new investment is added. It's what the company is worth on its own, as negotiated between the founders and investors.
**Post-money valuation** is the pre-money valuation plus the new investment. It's what the company is worth after the money goes in.
The formula: Post-money = Pre-money + Investment
Investor ownership = Investment ÷ Post-money
Example: - Pre-money valuation: $10M - Investment: $2M - Post-money: $12M - Investor ownership: $2M ÷ $12M = 16.7%
This distinction matters enormously when SAFEs are involved. Post-money SAFEs (the current Y Combinator standard) use post-money math explicitly — the SAFE investor owns a defined percentage of the fully diluted cap table at conversion, regardless of how many other SAFEs were issued. Pre-money SAFEs stack on top of each other, which can surprise founders who raised multiple SAFEs and then discover how dilutive they were at the priced round.
Always clarify whether a valuation cap is pre-money or post-money when signing a SAFE.