Compare pre-money and post-money valuations with dilution
vc3Category: venture-capitalCompare pre-money and post-money valuations with dilution
Pre-Money
$8,000,000
Post-Money
$10,000,000
Investor Ownership
20.0%
With a $8,000,000 pre-money valuation and $2,000,000 investment, the post-money valuation becomes $10,000,000. Based on 1,000,000 existing shares at $8 per share, investors receive 250,000 new shares (20.0% ownership), bringing total shares to 1,250,000.
Pre-money valuation represents company worth before new investment, while post-money valuation includes the fresh capital injection. This distinction determines dilution mechanics: investors receive ownership percentage based on their investment divided by post-money valuation, directly impacting existing shareholder dilution. Understanding this relationship proves critical during term sheet negotiations.
Share price calculations derive from pre-money valuation divided by existing shares outstanding. New shares issued to investors equal their investment divided by this price per share. This mathematical framework ensures fair pricing while quantifying exact dilution impact. Founders who grasp these mechanics negotiate more effectively, balancing capital needs against ownership preservation across multiple funding rounds.
Pre-Money
$8,000,000
Post-Money
$10,000,000
Investor Ownership
20.0%
With a $8,000,000 pre-money valuation and $2,000,000 investment, the post-money valuation becomes $10,000,000. Based on 1,000,000 existing shares at $8 per share, investors receive 250,000 new shares (20.0% ownership), bringing total shares to 1,250,000.
Pre-money valuation represents company worth before new investment, while post-money valuation includes the fresh capital injection. This distinction determines dilution mechanics: investors receive ownership percentage based on their investment divided by post-money valuation, directly impacting existing shareholder dilution. Understanding this relationship proves critical during term sheet negotiations.
Share price calculations derive from pre-money valuation divided by existing shares outstanding. New shares issued to investors equal their investment divided by this price per share. This mathematical framework ensures fair pricing while quantifying exact dilution impact. Founders who grasp these mechanics negotiate more effectively, balancing capital needs against ownership preservation across multiple funding rounds.