TL;DR: Pre-money valuation is what a company is judged to be worth before it takes in new investment. Post-money valuation is that figure plus the new money raised. The two define how much of the company an investor receives and how much existing shareholders are diluted.
Pre-money valuation is the agreed value of a company immediately before a financing round. Post-money valuation is the pre-money figure plus the amount of new capital invested. The relationship is straightforward: post-money equals pre-money plus investment.
The distinction matters because ownership is calculated on the post-money figure. An investor putting in $2M at an $8M pre-money valuation is investing at a $10M post-money valuation and therefore receives 20% of the company ($2M of $10M), not 25%. Founders should always confirm which figure a valuation refers to, because the same headline number implies different dilution depending on whether it is pre- or post-money.
Every priced equity round dilutes existing shareholders, and the pre/post-money split determines by how much. The lower the pre-money valuation for a given raise, the more ownership existing holders give up. This is also why a down round, priced below the previous round, is so dilutive, and why founders weigh minimally dilutive alternatives such as venture debt when they need capital but want to protect the cap table.
How is investor ownership calculated? Investment divided by post-money valuation. A $2M investment at a $10M post-money valuation buys 20%.
Why does the pre- versus post-money distinction matter? Because ownership and dilution are based on the post-money figure. Confusing the two can materially misstate how much of the company is being sold.
Related terms: Equity Dilution · Down Round · Convertible Note · SAFE · Minimally Dilutive Capital
