Pre-Money vs Post-Money Valuation: The Formulas
Pre-money vs post-money valuation: the formulas, how to calculate pre-money, a worked cap table with a 10% option pool, and how SAFEs and ASAs differ.
Pre-money vs post-money valuation: the short answer
Pre-money valuation is the value a company and its new investor agree for the business immediately before the new money goes in. Post-money valuation is that figure plus the new money. The post-money sets how much of the company the investor owns (investment ÷ post-money); the pre-money, divided by the fully diluted share count before the round, sets the price of each new share. Raise £2m at an £8m pre-money and the post-money is £10m, the investor owns 20%, and the existing shareholders keep 80%, before any new option pool is created.
The arithmetic is the same in every jurisdiction. What changes from deal to deal is what the term sheet counts inside the pre-money: an option pool for future hires, SAFEs or advance subscription agreements converting at the round, and the definition of "fully diluted". Those definitions, not the headline number, decide the stake a founder keeps. Both figures are equity values for the whole share capital at the round price, not enterprise values, and the round price is a negotiated price for a class of shares that usually carries preference rights.
Pre-money vs post-money valuation at a glance
| Criterion | Pre-money valuation | Post-money valuation |
|---|---|---|
| What it measures | The agreed equity value of the company before the round | The same equity value plus the new money |
| Formula | Post-money − new money | Pre-money + new money |
| What it sets | The price per share: pre-money ÷ fully diluted pre-money shares | The new investor's stake: investment ÷ post-money |
| What is usually counted in it | Shares in issue, options granted, the unallocated option pool (including any new pool the term sheet requires), SAFEs and notes converting at the round | Everything in the pre-money plus the new shares issued for cash |
| Who negotiates it | Founders and the lead investor, on evidence of what the business is worth | Not negotiated on its own: it follows from the pre-money and the size of the raise |
| Common trap | A new pool "in the pre-money" lowers the value existing shareholders actually receive | A "valuation" quoted without saying which: £8m post-money on a £2m raise is only a £6m pre-money |
| On a SAFE or ASA valuation cap | A pre-money cap: each holder's stake depends on how much else converts | A post-money cap: each holder's stake is fixed at signing (investment ÷ cap) |
Negotiate the pre-money, and read the post-money as a check. The investor's stake comes from the post-money; the share price comes from the pre-money and the fully diluted share count. A pool or a stack of SAFEs counted in that share count moves the price per share, and with it the founder's stake, without changing the headline number.
This page is general information on how UK equity rounds are priced. It is not legal, tax or investment advice. The terms of a round are set by the term sheet and the investment documents your solicitor negotiates.
The pre-money valuation formula, and the post-money formula
Three formulas do all the work. The worked example later on this page uses the same figures.
The three formulas
| Formula | What it gives | In a £2m round at an £8m pre-money |
|---|---|---|
| Post-money = pre-money + new money | The equity value immediately after the round | £8,000,000 + £2,000,000 = £10,000,000 |
| Investor ownership = investment ÷ post-money | The new investor's fully diluted stake | £2,000,000 ÷ £10,000,000 = 20% |
| Price per share = pre-money ÷ fully diluted pre-money shares | The price at which every new share is issued | £8,000,000 ÷ 1,600,000 = £5.00 |
Each formula rearranges. The pre-money valuation is post-money minus the investment. It is also the investment divided by the investor's percentage, less the investment: an offer of £2m for 20% implies a £10m post-money and an £8m pre-money. And it is the price per share multiplied by the fully diluted pre-money share count. The post-money valuation is simply the price per share multiplied by the fully diluted share count after the round.
"Fully diluted" means every share in issue, plus every share that granted options, warrants and converting instruments could become, plus the unallocated option pool. The term sheet defines it, and the definition is a negotiating point in its own right, because every share counted before the round lowers the price per share at a given pre-money.
How to calculate pre-money valuation, step by step
No software is needed. If you were looking for a pre-money valuation calculator, the four steps below are all such a calculator does, and doing them by hand shows where each term sheet clause bites.
1. Start from the offer
Take the investment and either the stated pre-money or the stake the investor wants. £2m for 20% gives a post-money of £2m ÷ 20% = £10m, so the pre-money is £8m.
2. List everything counted as fully diluted before the round
Shares in issue, options granted, the existing unallocated pool, any pool top-up the term sheet requires before completion, and any SAFEs, ASAs or convertible notes that convert at the round.
3. Divide the pre-money by that share count
The result is the price per share. The new investor's shares are the investment divided by that price.
4. Rebuild the cap table and check it
Each holder's shares divided by the post-round fully diluted total gives their stake. The investor's stake should equal investment ÷ post-money; if it does not, something has been counted differently.
Always say which figure you mean. "We are raising £2m at £8m" reads as an £8m pre-money to most founders and, to some investors, as an £8m post-money. On a post-money reading the investor owns 25%, not 20%, and the pre-money is £6m.
The option pool shuffle: pool in the pre-money or the post-money
Most institutional term sheets ask for an unallocated option pool of a stated size after the round, commonly expressed as a percentage of the post-money fully diluted share capital, and ask for it to be created or topped up before the new money goes in. Created that way, the pool sits inside the pre-money. The new investor buys its stake at a price that already counts the pool's shares, so the dilution from the pool falls on the existing shareholders alone. Founders call this the option pool shuffle.
Two consequences follow. First, a pool sized as a percentage of the post-money is a larger percentage of the pre-money: in a round where the investor takes 20%, a 10% post-money pool is 10% ÷ 80% = 12.5% of the fully diluted pre-money shares. Second, the value the existing shareholders actually receive for their shares, the effective pre-money, is the headline pre-money less the value of the new pool at the round price:
Effective pre-money = headline pre-money − (pool % of post-money × post-money). It is the value the round puts on the shares that existed before it.
In a UK company, the pool is usually headroom rather than issued shares: the number of shares the articles and shareholders' agreement allow the board to issue when employee options are exercised, often under an EMI scheme. It still counts in the fully diluted share capital, which is why it moves the price per share.
A pool in the pre-money is a price term, not an administrative one. Negotiate its size from a hiring plan for the period before the next round, and count any options already granted against it, because every unneeded share in the pool comes out of the existing shareholders' stake.
Worked example: a £2m round at an £8m pre-money with a 10% option pool
A UK software company has two founders and a small group of angels. Founder A holds 700,000 shares, Founder B 500,000 and the angels 200,000: 1,400,000 shares in all, with no option pool. A lead investor offers £2m at an £8m pre-money, on condition that an unallocated option pool equal to 10% of the post-money fully diluted share capital is created before completion, in the pre-money.
- Post-money = £8,000,000 + £2,000,000 = £10,000,000.
- Investor ownership = £2,000,000 ÷ £10,000,000 = 20%. The pool is 10%, so the existing shareholders end with 70%.
- Post-money fully diluted shares = 1,400,000 ÷ 70% = 2,000,000. The pool is 200,000 shares; the investor's stake is 400,000 shares.
- Fully diluted pre-money shares = 1,400,000 + 200,000 = 1,600,000.
- Price per share = £8,000,000 ÷ 1,600,000 = £5.00. Check: 400,000 shares × £5.00 = £2,000,000.
Cap table before and after the round
| Shareholder | Shares before the round | Fully diluted pre-money shares | % of pre-money | Shares after the round | % of post-money | Value at £5.00 a share |
|---|---|---|---|---|---|---|
| Founder A | 700,000 | 700,000 | 43.75% | 700,000 | 35.0% | £3,500,000 |
| Founder B | 500,000 | 500,000 | 31.25% | 500,000 | 25.0% | £2,500,000 |
| Angel investors | 200,000 | 200,000 | 12.5% | 200,000 | 10.0% | £1,000,000 |
| New option pool (unallocated) | 0 | 200,000 | 12.5% | 200,000 | 10.0% | £1,000,000 |
| Lead investor | 0 | 0 | 0% | 400,000 | 20.0% | £2,000,000 |
| Total | 1,400,000 | 1,600,000 | 100% | 2,000,000 | 100% | £10,000,000 |
The headline pre-money is £8m, but £1m of it is the new pool (200,000 shares at £5.00). The existing shareholders' 1,400,000 shares are priced at £7m, which is the effective pre-money: £8,000,000 − (10% × £10,000,000) = £7,000,000. The angels bear their share of the pool too: they held 14.3% of the shares before the round and hold 10% after it. Every existing holder keeps 70% of their previous stake (Founder A goes from 50% to 35%), because the pool and the new money together take 30% of the company.
Where the pool sits changes who pays for it
| Pool created in the pre-money (the term sheet) | Pool created after the round | No new pool | |
|---|---|---|---|
| Price per share | £5.00 | £5.71 (£8,000,000 ÷ 1,400,000, rounded) | £5.71 |
| Lead investor's shares for £2m | 400,000 | 350,000 | 350,000 |
| Existing shareholders' stake after the round | 70% | 72% | 80% |
| Lead investor's stake after the round | 20% | 18% | 20% |
| Option pool after the round | 10% | 10% | None |
| Who bears the pool | Existing shareholders only | Everyone, in proportion, including the new investor | Not applicable |
In the term sheet as offered, the existing shareholders bear all ten percentage points of the pool. Created after the round, the pool would dilute everyone in proportion: the existing shareholders would bear eight points (80% × 90% = 72%) and the investor two (20% × 90% = 18%). That is why investors ask for the pool in the pre-money, and why founders should model both versions before agreeing the pool's size.
The founders propose a 7% post-money pool, supported by a hiring plan for the 18 months to the next round. In the pre-money, the arithmetic becomes: existing shareholders 73%, post-money fully diluted shares 1,400,000 ÷ 73% = 1,917,808 (rounded), and a price per share of about £5.21. The effective pre-money rises from £7.0m to £7.3m (£8m less 7% of £10m), worth £300,000 to the existing shareholders at the same headline terms.
SAFEs, ASAs and convertible notes: pre-money and post-money caps
A SAFE (simple agreement for future equity) and a convertible note defer the price: the investor pays now and receives shares at the next priced round, usually at a discount to that round's price or at a valuation cap, whichever gives more shares. Whether the cap is a pre-money or a post-money figure changes what the investor ends up with.
- Post-money SAFE. Y Combinator moved its standard SAFE to a post-money valuation cap in 2018. The holder's stake before the priced round is fixed at signing: investment ÷ post-money cap. Each later SAFE on the same terms dilutes the founders, not the earlier SAFE holders. All SAFE holders are then diluted, with everyone else, by the priced round's new money and, depending on the drafting, by any pool increase.
- Pre-money SAFE. The cap is applied to the company's capitalisation before the SAFEs convert, so SAFEs issued on pre-money caps dilute one another, and no holder knows their stake until the round prices.
Two £500,000 SAFEs with a £5m cap, before the priced round's new money
| Post-money cap | Pre-money cap | |
|---|---|---|
| How each SAFE converts | Into 10% of the company: £500,000 ÷ £5,000,000 | Into shares equal to 10% of the shares in issue before the SAFEs convert |
| Each SAFE holder's stake | 10% | 8.3% (10 ÷ 120) |
| Both SAFE holders together | 20% | 16.7% (20 ÷ 120) |
| Existing shareholders | 80% | 83.3% |
| Who bears the second SAFE | The existing shareholders | The existing shareholders and the first SAFE holder |
The table makes simplifying assumptions: the company has no other converting instruments, both SAFEs convert at the cap rather than a discount, and the pre-money cap is applied to the shares in issue excluding the SAFEs themselves. Real pre-money SAFE maths depends on the round: the drafting may measure the capitalisation including options, the pool top-up or other notes, and the priced round's own pool and new money then dilute every holder again. The direction of the comparison holds, but model the actual documents.
The same headline cap gives the SAFE holders more of the company on a post-money basis, and the founders less, which is why a founder comparing SAFE offers should convert every cap to the same basis first.
A convertible note works the same way at conversion but is debt until then: it carries interest, which usually converts with the principal, and a maturity date at which it must convert or be repaid. The SAFE and the convertible note entries define both, and the FAQ on the difference between a SAFE and a convertible note compares them.
UK practice differs. A US-form SAFE is not usually drafted to meet HMRC's conditions for SEIS or EIS relief, so UK rounds with SEIS or EIS investors commonly use an advance subscription agreement (ASA) instead: the investor pays now for shares issued later, at a discount or a cap, with no interest, no right to a refund and a long-stop date by which the shares must be issued. HMRC's Venture Capital Schemes Manual sets out its view of the conditions; check the current version and take advice before relying on relief. For priced rounds, many UK investors start from the BVCA's model documents for early-stage investment (term sheet, subscription and shareholders' agreement, articles). Either way, check whether a cap is stated pre-money or post-money: the same number gives a different stake.
Down rounds and anti-dilution protection
A down round is a round priced below the previous round's price per share. Compare prices per share, not headline valuations: a pool top-up or converting SAFEs change the share count, so a new pre-money above the last post-money can still be a lower price per share, and the reverse.
Most UK term sheets give earlier investors anti-dilution protection against a down round, usually on a broad-based weighted average:
Under a broad-based weighted average, new price = old price × (A + B) ÷ (A + C).
Here A is the fully diluted shares before the new round, B the shares the new money would have bought at the old price, and C the shares it actually buys. Suppose the company in the worked example later raises £3m at £4.00 a share. A is 2,000,000, B is £3,000,000 ÷ £5.00 = 600,000, and C is £3,000,000 ÷ £4.00 = 750,000, so the adjusted price is £5.00 × 2,600,000 ÷ 2,750,000 = £4.73 (rounded). The lead investor's £2m is then treated as buying 423,077 shares instead of 400,000. Under a full ratchet, rare in UK rounds, the price falls to £4.00 and the lead holds 500,000. In UK articles the adjustment is usually delivered by issuing the protected investor additional shares, and the founders and other unprotected holders bear the cost. The anti-dilution page in the bridge round playbook works through the variants, and the Valuation Lab covers when to accept a down round.
On the figures above, the lead investor gains 23,077 extra shares under a broad-based weighted average and 100,000 under a full ratchet: more than four times as many, all of them diluting the founders and angels.
How intangible assets support the pre-money
The pre-money is the one negotiated number in the formulas; everything else follows from it. At the first institutional round, most of what an investor prices is intangible: the technology and the rights to it, customer contracts and how they renew, the data the product accumulates, the team and the way it works. None of that sits on the balance sheet, so the pre-money rests on how well the founder can evidence it. Our guide to how to value a business sets out the methods an adviser or investor uses and how intangible value enters each.
What tends to lower the pre-money
- IP the company cannot show it owns, such as code written by founders or contractors before assignment
- Revenue concentrated in a few customers with short or unsigned contracts
- Retention and cohort data that has never been extracted
- A cap table with SAFEs, ASAs and notes whose conversion has not been modelled
What tends to support it
- Assignments and registrations that put the IP clearly in the company
- Contracted and renewing revenue, with cohort retention by segment
- Named key people under service agreements and an option plan sized to the hiring plan
- A cap table and fully diluted definition agreed before the term sheet arrives
Round Ready is Opagio's preparation hub for founders raising a priced round: playbooks for Series A, bridge rounds and valuation, the 11-lesson Round Ready Academy, and the Round Readiness Diagnostic, which takes about eight minutes, scores your business across the twelve drivers of the Opagio 12 framework and returns a readiness score, the stage your round has reached and a 90-day plan, saved to a free account. It does not set or certify a pre-money valuation; it shows which drivers are strong and which need work before an investor's diligence reaches them. For the arithmetic of dilution across several rounds, see dilution maths every founder should own.
SEIS and EIS change the economics of a UK round for individual investors, and the limits and conditions change from time to time. This page does not state them. Check HMRC's current guidance on the Seed Enterprise Investment Scheme and the Enterprise Investment Scheme, and take advice, before you plan a round around either scheme. Our FAQ on the difference between EIS and SEIS summarises how the two compare.
FAQ
What is the difference between pre-money and post-money valuation?
Pre-money valuation is the agreed value of the company immediately before a new investment; post-money valuation is the pre-money plus the new money. The post-money sets the investor's stake (investment ÷ post-money); the pre-money, divided by the fully diluted pre-money share count, sets the price per share. £2m at an £8m pre-money gives a £10m post-money and a 20% stake.
What is the pre-money valuation formula?
Pre-money valuation = post-money valuation − new money. Equivalently, pre-money = investment ÷ the investor's percentage − investment, or price per share × fully diluted pre-money shares. An investor offering £2m for 20% implies a £10m post-money and an £8m pre-money. See the FAQ on how to calculate pre-money and post-money valuation for a second example.
Is the option pool included in the pre-money valuation?
Usually, yes. Most term sheets ask for the pool to be created or topped up before the round, so its shares are counted in the fully diluted pre-money share count and the dilution falls on existing shareholders. A 10% post-money pool in an £8m pre-money, £2m round lowers the effective pre-money from £8m to £7m. Negotiate the pool's size from a hiring plan.
What is the difference between a pre-money and a post-money SAFE?
A post-money SAFE fixes the holder's stake at signing: investment ÷ post-money cap, so £500,000 on a £5m cap is 10% before the priced round, and later SAFEs dilute the founders instead. On a pre-money cap, SAFEs dilute one another and no holder knows their stake until the round prices. In the UK, rounds with SEIS or EIS investors commonly use an advance subscription agreement instead.
Does a higher pre-money valuation always mean a better deal for founders?
No. A higher headline pre-money can leave founders with less than a lower one if it comes with a larger pool in the pre-money, more converting instruments counted as fully diluted, a participating liquidation preference or a full-ratchet anti-dilution clause. Compare offers on the founders' stake after the round and the price per share, not the headline number.
Next step: evidence the number you negotiate
The formulas turn a pre-money into a share price and a stake; they do not tell you what the pre-money should be. That number is negotiated, and at an institutional round it rests largely on intangible assets that never appear in the accounts. Opagio does not draft term sheets or set valuations; that work belongs to your lead investor, your solicitor and your corporate finance adviser. What Opagio for companies provides is the Opagio Value Drivers Register™: the named intangible assets in your business, with the evidence behind each, so that diligence questions are answered before they become a discount on the pre-money. To start from where your round stands today, use the Round Ready hub and its diagnostic. The glossary entries for dilution and the cap table define the remaining terms.
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