Definitions
- Pre-money valuation: the company value before new investment.
- Post-money valuation: the company value after new investment (often pre-money + investment, simplified).
- Ownership: the percent of the company after the round on a fully diluted basis (the basis matters).
Core formulas (simplified)
- Post-money = pre-money + investment.
- Implied investor ownership ~ investment / post-money.
- Existing holders' combined ownership ~ pre-money / post-money.
Why founders get surprised (option pool shuffle)
Many term sheets require increasing the option pool before the investment and counting the pool in the pre-money. This shifts dilution onto existing holders (founders and prior investors). The headline valuation can look the same while founder ownership drops more than expected.
Common mistakes
- Using ownership on an issued-shares basis instead of fully diluted.
- Ignoring SAFEs/notes converting in the priced round (dilution stacks).
- Treating investment / post-money as exact without building a cap table.