Numbers founders fumble

Pre-money vs post-money valuation explained simply

Updated 2 June 20266 min readLedgers Team

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The one distinction founders fumble in the room
Pre-money and post-money, in one breath
Why the distinction changes your ownership
A worked £ example (the bit worth slowing down for)
Where the share price comes from (and why it feels like magic)
The trap: the option pool shuffle
What investors read into it
The short version

Numbers founders fumble4 of 4

1.Convertible notes and SAFEs explained for UK founders
2.Dilution: what happens to your ownership when you raise
3.How to forecast cash for your next 12 months (investor-grade)
4.Pre-money vs post-money valuation explained simply

Quick answer

Pre-money is what your company is worth before the investment lands. Post-money is after. Here's the plain-English difference — with a worked £ example — and why it quietly changes how much of your company you give away.

The one distinction founders fumble in the room

You're across the table from an investor. They say, "We'll put in £200k at a £800k valuation." You nod. It sounds like a deal.

But you've just agreed to one of two very different things — and you don't know which. Because £800k pre-money and £800k post-money hand over completely different slices of your company. Get the word wrong and you can give away 25% when you thought you were giving away 20%.

This is the number founders fumble most often in front of investors. Not because it's hard — it takes about ninety seconds to understand — but because nobody ever said the two words slowly. So let's do that.

Pre-money and post-money, in one breath

Pre-money valuation is what your company is worth before the new money goes in. It's your opening price — the value you and the investor agree the business already has, on the strength of what you've built so far.

Post-money valuation is what your company is worth after the new money goes in. And the maths is gloriously simple:

Post-money = pre-money + the amount invested.

That's the whole relationship. The cash an investor puts in doesn't vanish — it sits in your bank account and becomes part of the company's value. So the company is worth more the instant the money lands, by exactly the amount that landed.

Think of buying a flat with a friend. The flat is worth £400k (that's the "pre-money" — what exists before you add anything). Your friend hands over £100k in cash that stays in a joint account attached to the property. Now the combined thing — flat plus cash — is worth £500k (the "post-money"). Nothing changed about the flat. You just added £100k of cash to the pile.

Why the distinction changes your ownership

Here's the part that actually matters to you: the investor's percentage is always worked out against the post-money number. Always. Because they're buying a share of the company as it exists once their money is in it.

The formula they care about:

Investor's ownership % = amount invested ÷ post-money valuation.

So the pre-money figure quietly sets everything. A higher pre-money means a bigger post-money, which means the same investment buys a smaller slice — and you keep more. A lower pre-money means the same cheque buys a bigger slice, and you give away more.

The pre-money is, in plain terms, the number you're really negotiating. The investment amount is usually fixed ("we invest £200k"). The pre-money is the lever that decides how much of your company that £200k costs you.

A worked £ example (the bit worth slowing down for)

Let's run the exact deal from the top of this article, both ways, so you can see the slice move.

You own 100% of your company. An investor offers £200,000. You shake on a £800,000 valuation. But which £800k?

Scenario A — £800k pre-money.

Pre-money: £800,000
Investment: £200,000
Post-money: £800,000 + £200,000 = £1,000,000
Investor's slice: £200,000 ÷ £1,000,000 = 20%
You keep: 80%

Scenario B — £800k post-money.

Post-money: £800,000 (this is the after figure, agreed up front)
Investment: £200,000
Pre-money (worked backwards): £800,000 − £200,000 = £600,000
Investor's slice: £200,000 ÷ £800,000 = 25%
You keep: 75%

Same cheque. Same headline "£800k." But Scenario B costs you an extra 5% of your company — a chunk you never get back. On a company that one day exits for £20m, that 5% is £1m. The word you didn't clarify in a thirty-second conversation was worth a million pounds.

This is why investors who quote "post-money" aren't being sneaky — it's increasingly the market norm, especially on SAFEs and notes. But you must know which one is on the table, every time.

Investors don't just get a percentage — they get actual shares, at an actual price. The price per share comes straight from the valuation, and seeing it removes the last bit of mystery.

The price per new share is set so that the maths lands on the agreed pre-money. Roughly: take your pre-money valuation, divide by the number of shares that exist before the round, and that's the price each new share is sold at. The investor's £200k buys that many shares at that price; the new shares get added to the total; and the percentages fall out exactly as the formula above predicts.

You don't need to do this by hand. But it's worth knowing that "20% for £200k" isn't a vibe — it's a share count and a share price, recorded on your cap table (the list of who owns what slice of the company). If those two don't match the deal you thought you agreed, something's wrong, and you want to catch it before you sign, not during due diligence. (See: What is a cap table and how do I keep mine clean?)

The trap: the option pool shuffle

One more thing investors do that catches founders out, and it hides inside the pre-money number.

Many term sheets say something like "£800k pre-money, including a 10% option pool." That option pool — shares set aside for future employees — gets created before the investment, out of the pre-money. Which means it dilutes you, not the investor. You've quietly absorbed a 10% hit that you might have assumed was shared.

You don't have to win this fight, but you do have to see it. Ask one question: "Is the option pool inside the pre-money or the post-money?" If it's inside the pre-money, you're paying for it alone. That single question marks you out as a founder who knows their numbers — exactly the impression you want to give. (See: Dilution: what happens to your ownership when you raise.)

What investors read into it

Here's the uncomfortable truth: investors are partly testing you with these terms. When a founder confidently asks "pre or post?" and "is the pool in the pre-money?", it signals someone who'll be a careful steward of the cash. When a founder glazes over, it raises a quiet doubt — if they fumble the cap table, what else are they fumbling?

You don't need to be an accountant or a lawyer. You need to know your own ownership cold, model the round before you walk in, and be able to pull up a clean cap table on demand. That readiness is the whole signal. The founders who lose 5% they didn't mean to are almost never the greedy ones — they're the ones who never modelled it.

The short version

Pre-money is what your company is worth before the money goes in. Post-money is after, and it's simply pre-money plus the investment. The investor's percentage is always calculated on the post-money figure, so the pre-money is the real number you're negotiating. Same cheque, different word, different slice of your company gone forever. Always ask which one, always check where the option pool sits, and always model it before you're in the room.

Walking into a raise? In Ledgers, your cap table and valuation model live in one place — see exactly how a pre-money or post-money offer changes your ownership before you reply to the term sheet, and share a clean, DD-ready cap table with investors in a click. Model your round and keep your cap table clean → start free.

Next, the number that follows straight from this one: Dilution — what happens to your ownership when you raise →

And the view investors check first: What is a cap table and how do I keep mine clean? →

Frequently asked questions

What's the difference between pre-money and post-money valuation?

Pre-money is your company's value *before* the new investment goes in. Post-money is its value *after* — equal to pre-money plus the amount invested. The investor's ownership percentage is calculated against the post-money figure.

How do I calculate post-money valuation?

Add the investment to the pre-money valuation. If your pre-money is £800,000 and an investor puts in £200,000, your post-money is £1,000,000, and they own £200,000 ÷ £1,000,000 = 20%.

Why does pre-money vs post-money matter so much?

Because the same cheque buys a different slice of your company depending on which one you agreed. A "£800k post-money" deal can cost you several percent more of your equity than a "£800k pre-money" deal — equity you never get back.

Is the option pool included in pre-money or post-money?

It depends on the term sheet, and it matters a lot. If the option pool is carved out of the pre-money, it dilutes you alone, not the investor. Always ask which side it sits on before you sign.

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