Pre and post-money valuation calculator

A $2 million investment at an $8 million pre-money valuation makes the company worth $10 million and gives the investor 20%. That is the headline. If the term sheet also requires a 15% option pool inside the pre-money, the founders’ 8 million shares are 65.0% of the company, not 80%, the price per share is $0.8125 instead of $1.00, and the $8 million headline is really $6.5 million for the people who already own the business.

The calculator solves for whichever value you do not have: pre-money, investment or ownership. It then works out the price per share, the new shares, the cap table before and after, the step-up from the last round, and what the same option pool does when it is created before the investment instead of after.

Who reaches for this

You choose which value to solve for. With pre-money and investment, the calculator gives post-money and the investor’s share. With pre-money and ownership, it gives the investment. With investment and ownership, it gives the pre-money. Every mode then runs the same cap table mechanics, so the share counts and the percentages stay consistent.

The option pool is where most calculators go wrong, and where the page does its extra work. You enter the existing shares, any existing pool, the pool you want after the round and whether it is created before or after the investment. The calculator solves for the share count that gives the investor exactly their percentage and the pool exactly its percentage, checks that the ownership adds up to 100%, and shows both timings together.

Four relationships cover a simple round. Post-money valuation is pre-money valuation plus the investment. Investor ownership is the investment divided by the post-money valuation. Pre-money valuation is post-money minus the investment. And the price per share is the post-money valuation divided by the fully diluted shares after the round.

The same number, two meanings

A headline valuation means little without its label. An investor who puts in $2 million at an $8 million pre-money valuation owns $2M ÷ $10M = 20%. An investor who puts in the same $2 million at an $8 million post-money valuation owns $2M ÷ $8M = 25%, and the implied pre-money valuation is only $6 million. Five percentage points of the company depend on one word. When two offers are compared, first check that both are on the same basis.

Negotiations rarely start with a complete set of numbers. An investor may name an ownership target and a check size, and leave you to work out the valuation. A founder may know how much dilution they will accept and need the valuation that delivers it.

The formulas run in three directions from the same relationship, investor ownership = investment ÷ (pre-money + investment). Solving for pre-money gives investment × (1 − ownership) ÷ ownership. Solving for investment gives ownership × pre-money ÷ (1 − ownership). Any two of the three values fix the third. Adding an option pool adds a fourth variable, which is why the pool needs its own section.

An option pool reserves shares for future employees. Investors want it in place before they invest, so that hiring does not dilute them right after they buy in. They also usually want it created inside the pre-money valuation. That is the option pool shuffle: the pool dilutes only the existing holders, because it exists before the price per share is set.

The arithmetic

Take the running example: 8 million founder shares, $2 million at an $8 million pre-money valuation, and a target pool of 15% of the company after the round. The investor must own 20% and the pool 15%, which leaves the founders with 65%. Founders hold 8,000,000 shares and those are 65% of the total, so the total is 8,000,000 ÷ 0.65 = 12,307,692 shares. The investor’s 20% is 2,461,538 shares and the pool’s 15% is 1,846,154 shares. The price per share is $10,000,000 ÷ 12,307,692 = $0.8125, and 2,461,538 × $0.8125 is the $2 million invested.

With the pool created after the investment, the investor buys 2,000,000 shares at $1.00 for 20% of the 10,000,000 shares that exist. The pool is then added, 1,764,706 new shares, and everyone is diluted together: founders drop from 80% to 68% and the investor from 20% to 17%. With the pool created before the investment, the investor holds 20% after the pool as well, so the founders alone absorb it. The 3-point difference is $300,000 at the $10 million post-money valuation.

Effective pre-money valuation

The $8 million headline stays on the term sheet, but the founders’ 8 million shares are worth 8,000,000 × $0.8125 = $6.5 million at the round price. The other $1.5 million of the headline is the value of the pool that was carved out of it. That is the effective pre-money valuation, and it is the figure to compare between offers. An $8 million pre-money with a large pre-money pool can leave founders with less than a $7 million pre-money with a small post-money pool.

How the pool size changes the result

Each 5 points of pool created before the investment costs the founders 5 points and $500,000 of effective pre-money value. Created after, it costs them 4 points, because the investor shares the dilution. The gap between the two grows with the pool: 1 point at 5%, and 4 points at 20%. This is why the pool size is a valuation term, not an administrative one.

When there is already a pool

Most companies raising a round already have some options. The target percentage applies to the total pool after the round, so existing options count toward it and only the shortfall is new. Suppose there are 10 million existing shares and a 500,000-share pool, and the term sheet asks for a 12% pool after the round in the pre-money, with $2 million at an $8 million pre-money valuation. The total after the round is 14,705,882 shares, the pool is 1,764,706 shares of which 1,264,706 are new, and the price per share is $0.68. Existing holders own 68.0%. A pool that was already large enough needs no top-up, and the calculator then leaves it alone.

What the investor sees

It helps to know why the shuffle exists. A fund that invests $2 million for 20% has a target for its stake, and the fund’s return model assumes that stake. If the company then grants 15% of its shares to new hires, the stake falls to 17%. Investors want the pool in place first so that the ownership they bargained for is the ownership they hold on closing day. The argument has substance, since hires do create value, and it explains why pool timing is negotiable and not a trap. The founder’s task is to see the cost and price it.

Several investors in one round

A round often has a lead investor and followers. They all buy at the same price per share, so the arithmetic is the same as for one investor with the combined check. Enter the total investment, and each investor’s percentage is their check divided by the post-money valuation. If a lead puts in $1.4 million and two followers $300,000 each, the total is $2 million and the shares are split 70%, 15% and 15%.

The price per share ties the valuation to the cap table. It equals the post-money valuation divided by the fully diluted shares after the round. Equivalently, it is the pre-money valuation divided by the fully diluted shares before the investment, counting the pool if it is created in the pre-money. That is why a pre-money pool lowers the price: the same valuation is divided over more shares.

New shares are the investment divided by the price per share. At $0.8125, $2 million buys 2,461,538 shares. Three checks catch most errors. The investor’s shares should be the stated percentage of the total. Existing shares, pool and new shares should add to the total. And the price per share times the total shares should equal the post-money valuation, which is $0.8125 × 12,307,692 = $10 million.

The price per share is not the strike price

Investors in a priced round usually buy preferred stock, with rights that common stock lacks. Employee options are on common stock, and their strike price is set from a separate independent valuation, often called a 409A valuation in the United States, which is usually lower than the preferred price. A price per share from this calculator is what the investor pays, and it is not what an employee will pay to exercise.

Reading the valuation clause in a term sheet

The clause that states the valuation usually packs several assumptions into one sentence. Read it for four things. Which shares count as fully diluted: issued shares, options, and any convertible instruments that will convert. Whether the option pool is measured before or after the investment. How large the pool is, and whether existing unallocated options count toward it. And whether the price per share is defined by a formula, since that formula decides the share count. A term sheet that says only “$8 million pre-money” has left all four open, and each of them moves the founders’ ownership.

The existing holders’ ownership after the round is their shares divided by the new total. With no pool, the investor’s 20% dilutes everyone by 20%: founders go from 100% to 80%. With a pool created before the investment, founders go to 65% because two blocks now sit ahead of them, the investor’s 20% and the pool’s 15%.

Dilution compounds across rounds. A founder who owns 65% after this round and gives up 20% of the company plus a fresh 10% pool at the next one keeps 65% × 0.70 = 45.5%. The multi-round arithmetic, with SAFEs converting and pool top-ups at each stage, is on the startup dilution and cap table calculator. What matters here is that the stake shrinks in percentage and grows in value if each round’s step-up is high enough. Owning 65% of a $10 million company is worth $6.5 million, and owning 45.5% of a $30 million company is worth $13.65 million.

Other holders share the dilution in proportion. If existing shares are split 90% to founders and 10% to an earlier angel, each keeps its proportion of the existing block and loses the same share to the new investor and the pool. The angel’s 10% of 65% is 6.5% of the company after the round.

The step-up compares the new round’s pre-money valuation with the last round’s post-money valuation. If the last round closed at a $4 million post-money valuation and this one starts at $8 million pre-money, the step-up is 2.0 times: the company is worth twice what it was when the last investors bought in. A step-up shows progress in the value of earlier shares.

A ratio below 1.0 is a down round. The company is valued below what earlier investors paid, and several things follow. Earlier investors may have anti-dilution rights that adjust their conversion price and issue them extra shares, which dilutes the founders further. New investors may ask for stronger terms. And employees’ options may be underwater if their strike price is above the new value. A flat round, near 1.0, is often described as a signal that growth has stalled. The step-up is a number worth checking before a term sheet is signed.

Many companies raise a first round on SAFEs or convertible notes, which convert into shares at the next priced round. Their conversion changes the pre-money arithmetic. The converting holders receive shares, those shares are part of the pre-money fully diluted count, and they are usually at a lower price than the new investors because of a valuation cap or a discount. A calculator that ignores them will overstate what existing holders keep.

This page models a priced round with existing holders and an option pool, and it does not convert SAFEs or notes. The SAFE note calculator and the convertible note calculator convert those instruments, and the founder equity split page covers how founders divide their own stake. If your round includes converting instruments, run them first and enter the resulting share counts here.

The headline valuation is the number everyone quotes and the least useful one for comparing offers. Compare on what each offer leaves the existing holders. Take three offers on the same $2 million and the same 8 million founder shares.

The lowest headline is the best offer for the founders. Offer B has the smallest pre-money, $7 million, but its pool is smaller and created after the investment, so founders keep 70.0%. Offer C has the highest headline and leaves them with 61.8%. The workbook builds this table for your own offers.

Size the pool to the hiring plan

A default pool percentage is a starting point for negotiation, not a requirement. The right size covers the grants you expect to make over the next 12 to 18 months. List the roles you plan to hire, the typical grant for each and the total. Subtract options you already hold in reserve, and the result is the top-up you need. If the plan needs 1,000,000 options and 200,000 are unallocated, the top-up is 800,000 shares, and the percentage follows from the round. Bringing that arithmetic to the table often lowers the requested pool.

Other levers

Valuation is one term among several. Ask whether the pool is created before or after the investment, whether unallocated options count toward the pool, and what the liquidation preference is. A 1x non-participating preference and a participating preference with a cap can produce very different proceeds at the same valuation. The calculator does not model those terms, and at a modest exit they can matter as much as the price.

What a counter-offer is worth

Take Offer A, $8 million pre-money with a 15% pool created before the investment, where founders hold 65.0%. A counter that sizes the pool to the hiring plan at 10% and keeps it in the pre-money gives founders 70.0%, five points, worth $500,000 at the $10 million post-money valuation. A counter that keeps 15% but creates the pool after the investment gives 68.0%, three points, worth $300,000. Both together, a 10% pool created after the round, give 72.0%, seven points and $700,000.

Each of those is worth more than asking for a slightly higher headline valuation. Adding $500,000 to the pre-money valuation of a $2 million round moves the founders from 65.0% to about 66.0%, one point. The pool terms are the larger lever for the same round, and they are often the easier ask, because the investor’s concern is protecting ownership against the pool’s dilution and not the number itself.

How much to raise, and what it costs in ownership

The amount comes before the valuation. It is usually set by runway: the monthly net burn multiplied by the months you want to fund, plus a cushion. A company burning $100,000 a month that wants 18 months of runway and a small buffer needs about $2 million. The runway calculator and the burn multiple calculator turn that into a number. The valuation then decides what the money costs.

Each extra $2 million of pre-money valuation saves the existing holders a few points, and the savings shrink as the valuation grows: 5 points from $6 million to $8 million, and 3.3 from $8 million to $10 million. A higher valuation is worth pursuing, but it is worth less per dollar as it rises, and it raises the bar the next round must clear. Valuations at this stage rest on comparables, traction and negotiation more than on a formula, and the business valuation calculator covers valuation from earnings, which is a different exercise.

A short checklist before signing

Working with SAFEs? Convert them with the SAFE note calculator first, or divide the founder stake with the founder equity split calculator.