Pre-Money vs Post-Money Valuation: What Founders Must Understand
What Is Pre-Money Valuation?
Pre-money valuation is the value of your company before new money is added.
Example:
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Pre-money: $4M
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Investment: $1M
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Post-money: $4M + $1M = $5M
The investor owns:
$1M / $5M = 20%
What Is Post-Money Valuation?
Post-money valuation is your company’s value after the investment.
If someone says “I’ll invest $1M at a $5M post-money valuation,” that implies:
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Pre-money: $4M
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Investor equity: $1M / $5M = 20%
Why the Difference Matters
Because miscommunication can cost you equity.
If you think the valuation is pre-money, but the investor meant post-money, you might give away more equity than intended.
Example:
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You agree to a $5M valuation.
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You thought it was pre-money (so post-money = $6M).
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Investor meant post-money (so pre-money = $4M).
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You gave away 20%, not 16.6%.
Founders: Always Clarify!
Ask:
🔍 “Is that valuation pre- or post-money?”
📑 Get it in writing.
📊 Model both scenarios.
Convertible Instruments and Valuation
SAFEs and convertible notes often don’t have a valuation yet — but they convert based on a cap or discount that affects pre/post-money math later.
Y Combinator now uses Post-Money SAFEs so dilution is easier to track.
🧠 Tip: A post-money SAFE gives investors a fixed percentage of ownership upon conversion.