How to Calculate Post-Money Valuation, With Worked Examples

Pre-money and post-money valuation are two of the most used terms in startup fundraising, and two of the most misunderstood. Founders who mix them up can give away several extra points of their company without noticing. The maths is simple once you've seen it laid out, so let's lay it out.

The basic formula

Post-money valuation = pre-money valuation + new money invested.

Pre-money is what the company is worth immediately before the investment. Post-money is what it's worth immediately after, because the new cash is now on the balance sheet.

From those two numbers you can work out the investor's ownership:

Investor ownership = investment ÷ post-money valuation.

Now notice the common mistake. If a founder hears "$2 million at $8 million" and assumes $8 million is post-money, they'll think the investor is getting 25% ($2M ÷ $8M). The difference between 20% and 25% is a fifth of the round. Always confirm in writing whether a valuation is pre- or post-money.

Price per share

Priced rounds set a price per share for the new preferred stock. The usual calculation:

Price per share = pre-money valuation ÷ pre-money fully diluted shares.

Then:

New shares issued = investment ÷ price per share.

The key phrase is "fully diluted". The share count normally includes all common shares, all granted options, the unallocated option pool and, depending on the term sheet, any convertible instruments that convert in this round. What goes into that number is where most of the negotiation happens.

How the option pool changes the maths

Investors usually want an option pool big enough to cover hiring until the next round. They also usually want it counted in the pre-money share count. That means existing shareholders bear the cost of creating or enlarging it, and the effective pre-money valuation for the founders is lower than the headline.

This isn't unfair in itself. You do need a pool to hire, and current holders benefit from good hires. But it's worth negotiating the size. Bring a hiring plan that shows what options you'll actually grant before the next round and argue for a pool that fits it, rather than accepting a round number.

How SAFEs and notes change the maths

When convertible instruments convert in a priced round, they add shares. The question is whether those shares are counted in the pre-money share count (which dilutes existing holders) or not.

Most term sheets treat converting SAFEs and notes as part of the pre-money capitalisation. So, as with the pool, the founders absorb that dilution, not the new investors.

See our SAFE vs convertible note guide for how caps and discounts set the conversion price.

Pre-money vs post-money for SAFEs

This is a separate point that confuses people because it uses the same words. A SAFE's valuation cap can be expressed as pre-money or post-money:

• Post-money SAFE cap: includes all the SAFE money being raised. Ownership ≈ investment ÷ cap. Easy to calculate, but every extra SAFE dilutes the founders.
• Pre-money SAFE cap: excludes the SAFE money. Ownership depends on how much other convertible money converts at the same time, so it's harder to predict.

The standard YC SAFE has used a post-money cap since 2018.

Quick reference table

Here's how ownership changes for a $2 million raise at different valuations, ignoring pools and convertibles:

Notice how much difference the early valuation steps make. Going from $4M to $8M pre-money cuts dilution from a third to a fifth. Beyond a certain point, each extra million of valuation saves less. That's one reason experienced founders often care more about choosing the right partner than squeezing the last dollar of valuation.

Working backwards from a target ownership

Investors often think in ownership targets. A seed fund might want 10% to 15%. If you know the target and the cheque size, you can see what valuation they're implicitly proposing.

Post-money = investment ÷ target ownership.

If a fund wants to invest $1.5M and own 15%, they're implying a $10M post-money valuation ($1.5M ÷ 0.15). If you raise $2.5M in total from them and others, the pre-money is $7.5M.

This works the other way too. If you know you need $2.5M and don't want to sell more than 20%, you need a post-money valuation of at least $12.5M, so a pre-money of $10M. That gives you a clear number to anchor on.

Why valuation isn't everything

A high valuation feels good, but it sets the bar for your next round. If you raise seed at a valuation you can't grow into, you risk a flat or down round later, which hurts morale and can trigger anti-dilution clauses. A sensible valuation with a strong lead and clean terms is often worth more than a high one with awkward strings attached.

Also look beyond the headline number at the rest of the term sheet: liquidation preferences, board composition, protective provisions and pro rata rights. Our guide to term sheet clauses covers them.

Checklist before you agree a valuation

1. Confirm in writing whether the number is pre-money or post-money.
2. Ask what's included in the pre-money fully diluted share count.
3. Agree the option pool size and whether it sits in the pre-money.
4. Model all SAFEs and notes converting.
5. Calculate founder ownership after the round, fully diluted.
6. Sanity check against recent rounds for similar companies. See our guide on valuation methods.

A full worked round, step by step

Let's pull everything together into one round so you can follow the numbers from start to finish. All figures are illustrative.

Without the pool requirement, the founders would have owned about 75.8% after the round. The pool cost them roughly eight points. That's the number to keep in mind when you negotiate the pool size.

Using a spreadsheet

Once you've done this by hand once, build a simple model with input cells for pre-money, investment, target pool and existing shares, and formulas for the rest. Add a section for SAFEs converting with their caps and discounts. You'll reuse it every time you get a term sheet and it makes comparing offers much easier.