The short answer
Pre-money valuation is the value agreed for your company immediately before new money comes in. Add the new investment and you get the post-money valuation; the new investors' ownership is their investment divided by the post-money figure.
- Pre-money + new investment = post-money.
- New investors own investment ÷ post-money.
- Option pool increases are often counted inside the pre-money, which dilutes founders, not new investors.
- Always confirm whether a number is quoted pre or post.
How it works
In a priced round, you and your lead investor agree on a valuation and an amount. If the number is "pre-money," it describes the company before the new cash. The math is simple:
- Post-money valuation = pre-money valuation + new investment
- New investors' ownership = new investment ÷ post-money valuation
- Price per share = pre-money valuation ÷ shares outstanding before the round (on whatever share count the term sheet specifies)
Worked example (hypothetical)
A seed round raises $2M at an $8M pre-money valuation. Post-money is $10M, so the new investors own $2M ÷ $10M = 20%. Existing holders go from 100% to 80% of the company.
Now suppose the term sheet asks for a new 10% option pool "in the pre-money." That pool is carved out of the existing holders' share before the money arrives, so founders end up with less than 80% while the investors still own 20%. Same headline valuation, different outcome for you.
Questions to ask on any offer
- Is this valuation pre-money or post-money?
- Which shares are counted: all options, the existing pool, a new pool, converting SAFEs?
- After the round, what percentage will the founders own together?
- How do outstanding SAFEs and notes convert at this price?
Why it matters to a pre-seed founder
Founders often hear a number and assume it's the one that matters for them. Ask two questions on every offer: is this pre or post, and what's included in the share count? Then compare offers on what you'll own after the round, not the headline. See post-money valuation, term sheet and our SAFE vs priced round guide.
Frequently asked questions
What's the difference between pre-money and post-money?
Pre-money is the value before the new investment; post-money is the value right after it. Post-money equals pre-money plus the amount raised.
Do SAFEs use pre-money or post-money?
Y Combinator's standard SAFE uses a post-money valuation cap. Older pre-money SAFEs also exist.
Why does the option pool matter?
If a new or larger option pool is counted in the pre-money valuation, it dilutes existing shareholders rather than the new investors.