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Post Money Valuation
Funding Guides Published:  Feb 6, 2024 3 min read
Expert reviewed

Post-money valuation explained

Kirsty Macsween
Writer
Kirsty MacSween

Copywriter

Jonny Seaman
Expert contributor
Jonny Seaman

Investor Partnerships Manager

Your post-money valuation is the market value of your startup after you’ve taken in outside funding from a funding round or from a one-off investment.

Your pre-money valuation and post-money valuation are important points of negotiation between you and potential investors. In this post we cover what post-money valuation is, how to calculate it and how it affects equity dilution.

In this post

Startup valuation 101
There’s no exact science to deciding on a valuation for your startup. Here are some resources to help:
- How to value your company and how much equity to give away
- How to value a pre-revenue startup
- What drives your company valuation?
- Pre-money valuation explained

Pre-money vs post-money valuation: why does it matter?

When you talk to investors, you need to agree on a number that reflects your startup’s current worth and future potential – the valuation. The valuation determines how many shares (ie, how much company ownership) they’ll get for the investment amount (ie, the price per share).

But within this idea of the valuation, there are actually two distinct figures: the pre-money valuation and the post-money valuation.

  • Pre-money valuation is how much your company is worth before the investment under discussion.
    The pre-money valuation is what is used to set the price per share.
  • Post-money valuation refers to how much your company will be worth after the proposed investment into your company.
    After the cash is injected into your company, the post-money valuation becomes the market value of the company.

⚠️ When you talk with your potential investors about the valuation, it’s critical that you are both on the same page about whether you’re using the pre-money valuation or post-money valuation.

Jonny Seaman

Setting a pre-money valuation is more common in the UK and Europe. US investors are more likely to discuss valuations in post-money terms.

Another giveaway is if your investor prefers to talk in percentages, for example:

  • ‘I will invest £1 million for 20%’ implies a post-money discussion
  • ‘I will invest £1 million at a £4 million pre / £40 per share’ is a pre-money discussion
Jonny Seaman

Investor Partnerships Manager,

SeedLegals

If you’re talking pre-money valuation while your investor’s talking post-money valuation, your investor will come away with a lot more equity than you bargained for. The pre-money valuation will be lower, meaning the investor will get more equity for their money.

How do you calculate the post-money valuation?

To calculate the post-money valuation, take your pre-money valuation and add the new funds.

Post-money valuation example
UnicornTech has successfully raised a seed round of £1 million at a pre-money valuation of £5 million.

Post-money valuation = pre-money valuation + investment amount

UnicornTech’s post-money valuation is £6 million (£5 million + £1 million)

The hard part isn’t calculating the post-money valuation – it’s getting a figure for the pre-money valuation. Your valuation takes into account both tangible and intangible assets – for example, balancing your current net revenue with an informed view of your potential within the market.

What factors affect your pre-money valuation?
Landing on a pre-money valuation that you and your investor agree on can be tricky. There’s no simple formula that’ll give you a firm number. Here are some of the factors that you and your investor will use to determine a fair valuation:
- Market potential
- Revenue projections
- Team strength
- Product USP
- Traction
- Industry trends
- Competitive landscape
Read more: What's pre-money valuation?

Post-money valuation: ownership and dilution

The post-money valuation is important for understanding how existing shareholders’ ownership in the company will be diluted by the incoming funding round.

Imagine a company is raising money at a £5 million valuation, but hasn’t defined whether this is a pre-money or post-money valuation. The difference in dilution is as follows:

Chart showing the difference in dilution when investment is raised at pre-money valuation versus post-money valuation

Understanding how the new investment will dilute your ownership helps you negotiate fair terms with investors so you don’t give up too much control too early.

The higher the post-money valuation, the less equity you need to give up for the investment. However, be careful not to land on an overinflated valuation. This could cause problems further down the line if you don’t meet the high growth targets that investors expect from a highly valued startup. As with most startup funding decisions, you need to strike the right balance for your specific situation and goals.

Talk to the funding experts

Need to talk through your funding options? Not sure how much equity you need to part with to raise funds? We can help. Choose a time to book a free call with a SeedLegals funding strategist.


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