Pre and Post Money Valuation Calculator
Calculate company valuations and understand equity dilution
Pre and post money valuations are crucial concepts in startup funding and investment rounds. They help determine company ownership and control:
- Pre-money valuation: The company's value before receiving new investment
- Post-money valuation: The company's value after receiving new investment (Pre-money + New investment)
Understanding these concepts is essential for both investors and founders as they directly impact ownership percentages and company control.
Pre-Money Valuation
Pre-Money Valuation = Number of Existing Shares × Price per Share
Post-Money Valuation
Post-Money Valuation = Pre-Money Valuation + New Investment
Ownership Percentages
New Investor Ownership % = (New Investment ÷ Post-Money Valuation) × 100
Existing Shareholders % = (Pre-Money Valuation ÷ Post-Money Valuation) × 100
Dilution occurs when new shares are issued, reducing existing shareholders' ownership percentages. It's important to understand:
- Economic Dilution: Reduction in the value of each share
- Control Dilution: Reduction in voting power and control
- Anti-dilution Protection: Mechanisms to protect against future dilution
While dilution reduces ownership percentage, it doesn't necessarily mean a reduction in value if the investment leads to company growth.
Example 1: Simple Investment Round
- Company has 1,000,000 shares at $1 each
- Pre-money valuation: $1,000,000
- New investment: $250,000
- Post-money valuation: $1,250,000
- New investor ownership: 20%
- Existing shareholders: 80%
Example 2: Multiple Round Impact
Consider the cumulative effect of multiple investment rounds:
- Initial ownership: 100%
- After Series A (20% dilution): 80%
- After Series B (additional 20% dilution): 64%
- This demonstrates how multiple rounds can significantly impact founder ownership
What's better: higher pre-money or post-money valuation?
From a founder's perspective, a higher pre-money valuation is generally better as it means less dilution for the same investment amount. However, realistic valuations are important for future rounds.
How do convertible notes affect valuation?
Convertible notes typically convert to equity at a discount to the next round's price. This affects the effective pre-money valuation and dilution calculations when the notes convert.
Should I include employee stock options in calculations?
Yes, it's important to consider the option pool in your calculations. The size of the option pool affects both pre and post-money valuations and should be factored into dilution calculations.