Fundraising
Pre-money vs post-money valuation
Pre-money valuation is what the company is agreed to be worth before the new investment; post-money is that figure plus the money raised. Investor ownership is always the investment divided by the post-money valuation. Confusing the two on a £4m raise is worth more than three percentage points of the company, so confirm which basis a term sheet uses before you negotiate anything else.
Prepared by Perseids · Published · Updated
The same round stated three ways
| Basis | Pre-money | Investment | Post-money | Investor gets |
|---|---|---|---|---|
| £16m pre | £16m | £4m | £20m | 20.0% |
| £20m post | £16m | £4m | £20m | 20.0% |
| £20m pre | £20m | £4m | £24m | 16.7% |
£16m pre
- Pre-money
- £16m
- Investment
- £4m
- Post-money
- £20m
- Investor gets
- 20.0%
£20m post
- Pre-money
- £16m
- Investment
- £4m
- Post-money
- £20m
- Investor gets
- 20.0%
£20m pre
- Pre-money
- £20m
- Investment
- £4m
- Post-money
- £24m
- Investor gets
- 16.7%
The first two rows are the same deal described differently. The third is a materially better deal for the founders — and the only visible difference in conversation is one word.
Where the option pool sits
Most term sheets place an option pool increase inside the pre-money. That means the pool is created before pricing, the pre-money valuation is divided across more shares, the price per share falls, and existing holders fund the pool. Two term sheets with identical headline valuations can differ by several points of founder ownership on this term alone.
Questions to ask on any term sheet
- Is the valuation quoted pre-money or post-money?
- Is the option pool inside the pre-money, and at what target percentage?
- Do outstanding SAFEs and notes convert before or alongside the new money?
- Is the share count fully diluted, and does it include the unissued pool?
Prepared by Perseids for general information. It is not legal, tax or investment advice — confirm your specific situation with your advisers.
Frequently asked questions
- Which is better for founders?
- For a given number, pre-money is better: the same headline figure produces a higher post-money and therefore a smaller investor percentage. Post-money framing is better for investors because it fixes their stake.
- How do SAFEs affect the two figures?
- Converting SAFEs typically land in the pre-money share count, so they dilute existing holders rather than the incoming investor. Model the conversion first, then price the round.
Put this into practice with Perseids.
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