How this calculator works
Pre-money valuation is what the company is worth before new money arrives. The new investment is added to it to get the post-money valuation. The investor owns whatever share the new money represents of that post-money figure, so a $2 million investment into a $10 million post-money company buys 20%. The order matters: investors often quote a pre-money value and founders should convert it to post-money before judging dilution, because the same pre-money figure leaves existing owners with a different share depending on how much is raised. Option pools and convertible notes are not modelled here; in real term sheets they are usually included in the pre-money base.
Formula
Post-money valuation = pre-money valuation + new investment. Investor ownership = new investment / post-money valuation. Pre-money valuation = post-money valuation - new investment, and new investment = post-money valuation x investor ownership.
Worked example
A company is valued at $8 million before a round and receives $2 million. The post-money valuation is $10 million and the investor owns $2 million / $10 million = 20%. If the post-money valuation is $12 million and the investor is to own 15%, the investment is 0.15 x $12 million = $1.8 million and the pre-money valuation is $10.2 million.
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Frequently asked questions
Why do investors prefer to quote pre-money?
A pre-money figure sounds larger than the post-money share it implies. For example, a $9 million pre-money with a $3 million round is a $12 million post-money company where the investor owns 25%, not the lower share a $9 million headline might suggest.
Where does the option pool fit?
An option pool is granted out of the pre-money valuation in most term sheets, so it dilutes founders before the new investor arrives. This calculator treats only the new investment. Add the pool to the pre-money figure if you want to see its effect.
Does a higher valuation always mean a better deal?
No. A high valuation can come with liquidation preferences, participation rights or other terms that change the payout in a sale. Compare the whole term sheet, not only the headline ownership percentage.