Fundraising
Pre-money and post-money valuation explained
Calculate pre-money valuation, post-money valuation, share price, and investor ownership in a simple priced financing round.
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Identify which valuation is being quoted
Pre-money valuation describes the company’s agreed equity value before the new financing. In a simple primary financing, post-money valuation adds the new investment to that amount. Cooley’s definition of pre-money valuation describes this relationship.
The formula needs a defined transaction. The examples below exclude debt conversion, changes to the option pool, fees, and secondary purchases from existing holders.
The same headline number can describe different deals
Suppose an investor contributes $3,000,000. A $12,000,000 pre-money valuation and a $12,000,000 post-money valuation produce different ownership results.
| Quoted terms | Pre-money | Post-money | Investor ownership |
|---|---|---|---|
| $12 million pre-money | $12,000,000 | $15,000,000 | 20% |
| $12 million post-money | $9,000,000 | $12,000,000 | 25% |
For these simplified terms, investor ownership equals new investment divided by post-money valuation. Always label a quoted valuation before comparing offers.
Translate valuation into a price per share
Assume the first company has 6,000,000 shares in the agreed pre-round capitalization. The price is $12,000,000 ÷ 6,000,000 = $2 per share. A $3,000,000 investment buys 1,500,000 new shares. The resulting 7,500,000-share total gives the investor 20%.
A share price requires both a valuation and a share-count definition. The same headline valuation can produce a different price if the financing denominator includes a larger pool or additional converting instruments. An authorized share limit is not a substitute for that agreed capitalization.
Keep other valuation figures separate
A financing valuation, an option’s strike price, a recorded common-stock fair market value, and a future sale price describe different things. Do not copy one into a field intended for another simply because they all involve equity.
A secondary purchase moves existing shares from a seller to a buyer. It does not issue the same new shares or put the purchase price into the company, so the primary-financing example does not describe that transaction.
Use Round modeling to compare the proposed financing using the company’s recorded instruments and pool assumptions. Use Exit scenarios to explore sale proceeds.