Post-money Valuation

The post-money valuation is the value of a company after the inflow of fresh capital. It is calculated by adding the newly invested money to the valuation before the round. It shows what stake new investors receive for their capital. The arithmetic is simple: if the pre-money valuation is eight million euros and two million is invested, the post-money valuation is ten million and the new investor holds 20 percent. That is why this figure is the more practically relevant one, since ownership follows directly as the amount invested divided by the post-money valuation.

Two points complicate the calculation in practice. First, the treatment of the option pool, because creating it before the round and including it in the pre-money valuation means existing shareholders alone bear the dilution, which improves the investor's position arithmetically without changing the headline valuation. Second, outstanding convertible loans and SAFEs, which convert in the round at a discount or a valuation cap and therefore create additional shares. If the post-money valuation is calculated without these instruments, the new investor's actual percentage is lower than assumed. Term sheets should therefore always state whether the valuation quoted is on a fully diluted basis.

The arithmetic is: post-money valuation equals pre-money valuation plus the new capital paid in, and the new investor's stake equals the investment divided by the post-money valuation. In practice the actual stake deviates as soon as convertible loans from earlier rounds convert at a discount or an option pool is carved out of the valuation, because both create additional shares without new money coming in.