Pre-money, post-money and dilution
When a startup raises money in a priced round, it issues new shares to investors. The pre-money valuation is what the company is worth just before the cash comes in; the post-money valuation is that value plus the amount raised. The investor’s ownership, the price per share and the dilution of every existing shareholder all follow from these two numbers.
The formulas
- Post-money = pre-money + amount raised
- Investor ownership = amount raised ÷ post-money
- Price per share = pre-money ÷ fully diluted shares before the round
- New shares issued = amount raised ÷ price per share
- Your stake after = your stake before × (1 − investor ownership)
“Fully diluted” means counting every share that exists or could exist: common and preferred shares, granted and ungranted options in the pool, and warrants.
Worked example
A startup raises $2 million at an $8 million pre-money valuation. It has 10 million fully diluted shares, and the founder owns 60%.
- Post-money = $8M + $2M = $10 million.
- Investor ownership = $2M ÷ $10M = 20%.
- Price per share = $8M ÷ 10M = $0.80; the company issues 2.5 million new shares.
- The founder’s stake falls from 60% to 60% × 0.8 = 48%, but it is still worth $4.8 million at the round price: 48% of $10 million equals 60% of $8 million. Dilution reduces the percentage, not the value.
Dilution by amount raised
At the same $8 million pre-money:
| Amount raised | Investor stake | Founder after |
|---|---|---|
| $500,000 | 5.9% | 56.5% |
| $1,000,000 | 11.1% | 53.3% |
| $2,000,000 | 20.0% | 48.0% |
| $3,000,000 | 27.3% | 43.6% |
| $5,000,000 | 38.5% | 36.9% |
Seed and Series A rounds commonly sell 15 to 25% of the company.
What this simple model leaves out
- Option pool shuffle: investors often require a new or larger option pool to be created before the round, counted in the pre-money. That dilutes existing holders more than the headline numbers suggest.
- SAFEs and convertible notes convert at the priced round, usually at a discount or a valuation cap, adding shares that also dilute the founders.
- Liquidation preferences: preferred shares are often paid back first in a sale, so a percentage of the cap table is not the same as a percentage of the proceeds.
For an early check of whether a business can grow into its valuation, look at its unit economics with the customer lifetime value calculator.