Pre-money and post-money

The core identity of every priced round:

post-money valuation = pre-money valuation + new investment
investor ownership   = new investment / post-money valuation

If you raise $8M at a $32M pre-money, the post-money is $40M and the new investors own 8 / 40 = 20%. Existing holders (founders, prior investors, option holders) own the remaining 80% — before you account for how the option pool is sized. That last clause is where founders get surprised. See the option pool shuffle.

The big idea

Pre-money is the agreed value of the company as it stands before this check clears. Post-money is that value plus the cash. Neither is an appraisal of assets; early on it is a negotiated ownership split dressed as a number. Later rounds start to look more like multiples of revenue — covered in valuation.

A pie you re-slice after someone brings dessert: they own dessert / (old pie + dessert). The analogy breaks on the pool: extra empty slices are often cut from the old pie first, so the newcomer still gets a clean 20% of a larger labeled pie.

Walking through price per share

Once you have a pre-money and a fully diluted pre-money share count, the price falls out:

price per share = pre-money valuation / fully diluted pre-money shares
investor shares = investment / price per share

Or equivalently:

investor shares = post-money fully diluted shares × (investment / post-money)

Fully diluted means every share that could exist if all options, warrants and converting instruments were exercised or converted — usually including the new option pool the term sheet requires. Investors insist on that denominator because they do not want to buy 20% today and discover tomorrow that a fresh pool diluted them to 17%.

Both formulas should match if the pool and converting SAFEs are modeled correctly. Build the cap table both ways when you are checking a term sheet; mismatches mean someone forgot a SAFE or mis-sized the pool.

Post-money SAFE holders are part of the pre-money fully diluted count when they convert into the round. Omit them and your price-per-share math is fiction. Work SAFE conversion math first.

A sanity check on the shuffle:

effective pre-money ≈ headline pre-money − (post-money × pool %)

$32M pre / $8M raise / 10% post-money pool → effective pre ≈ $28M. Existing holders are really being valued at ~$28M. The other $4M is reserved for people you have not hired yet.

Common mistakes

• Negotiating pre-money while ignoring the pool. You "won" $2M of headline and lost $3M to an oversized pre-money pool.
• Forgetting SAFE conversion in the denominator.
• Announcing "investors get 20%" before the pool and converting instruments are placed.
• Treating price per share as a vanity metric. Employees care about 409A and grant size; investors care about ownership and prefs. Price is the bridge.

Check yourself

$8M in at $32M pre. What is post-money, and what % do new investors own (ignoring pool)?

$40M post, 20%.

Why include the new option pool in fully diluted pre-money shares?

So the investor's 20% is measured after the top-up they demanded; otherwise grants dilute them next.

Key takeaways

• Ownership = investment / post-money.
• Price per share = pre-money / fully diluted pre-money shares, including the new pool when the term sheet says so.
• Always reconcile ownership targets with share math.
• Effective pre-money net of pool is the number founders actually got.

Further learning

Next: walk the share counts in a priced Series A.