Pre-Money Post-Money Valuation Calculator — with option pool

A pre-money post-money valuation calculator converts the two numbers a term sheet argues about — the valuation and the cheque — into the numbers that actually determine who owns what. Post-money valuation, investor ownership percentage, price per share and the dilution suffered by everyone already on the cap table all follow arithmetically once the pre-money and the investment are fixed. Adding an option pool changes every one of them, which is why the pool sits alongside valuation as a negotiated term rather than an administrative detail.

Arb Digital publishes this in the free tool library at arbsbuy.com for founders reading a term sheet for the first time. It differs from the live equity dilution calculator in where it starts: that tool applies a round to an existing cap table and shows what happens to each holder's percentage. This one derives the round itself — the post-money, the price per share and the share count — from the valuation being negotiated.

What This Valuation Calculator Does

Enter the pre-money valuation, the investment, the fully diluted share count before the round and the option pool the investor expects to see in place afterwards. The calculator produces the post-money valuation, the investor's ownership percentage, the price per share, the number of new shares issued and the ownership split across all three groups.

The output worth studying is the effective pre-money. When a pool is created before the round closes — which is the standard structure — the new shares dilute the existing holders and not the incoming investor. The headline pre-money is therefore not the value the existing shareholders receive for their stake. The calculator reports both figures so the difference is explicit rather than discovered at signing.

The second pre-money field lets you price a negotiation. Enter the valuation you are hoping for alongside the one on the table, and the subtitle reports the difference in founder ownership points. Turning a valuation argument into an ownership number tends to clarify how much of it is worth fighting for.

How to Use It

1. Use a fully diluted share count. Include options already granted, warrants and anything convertible that is being counted in the round. A count that excludes them understates dilution.
2. Establish whether the pool is pre-money or post-money before anything else. It is the single term with the largest effect on founder ownership after the valuation itself.
3. Enter the pool as the target percentage after closing, not as the amount being added. Investors specify it that way, because what they care about is the hiring capacity that exists on day one.
4. Read the effective pre-money, not the headline. A higher headline valuation with a larger pool can leave founders with less than a lower one with a smaller pool.
5. Compare two valuations to convert a negotiating position into ownership points before deciding how hard to push.

The Formula / How It's Calculated

The base relationship is short: post-money = pre-money + investment, and investor ownership = investment ÷ post-money. Everything else follows from where the option pool sits.

With a pool created before the round, the existing holders keep their share count and absorb both dilutions. If existing shares are E, investor ownership is i and the pool target is p, the total post-round share count is T = E ÷ (1 − i − p). Price per share is post-money ÷ T, new investor shares are i × T, and pool shares are p × T.

Run the defaults. A pre-money of 8,000,000 plus an investment of 2,000,000 gives a post-money of 10,000,000, so the investor takes 2,000,000 ÷ 10,000,000 = 20.00 percent. With a 10 percent pool target, the existing holders are left with 70.00 percent.

That fixes the share count: 6,000,000 ÷ 0.70 = 8,571,429 fully diluted shares after the round. Price per share is 10,000,000 ÷ 8,571,429 = 1.1667. The investor receives 1,714,286 shares and the pool holds 857,143.

Now the figure that matters. The existing 6,000,000 shares at 1.1667 are worth 7,000,000, not the 8,000,000 headline. The effective pre-money is 7,000,000, and the missing 1,000,000 is what the option pool cost the people who were already there. Without any pool the same round would price at 10,000,000 ÷ 7,500,000 = 1.3333 per share and leave existing holders with 80 percent.

The Option Pool Shuffle

The structure above has a name in venture circles, and understanding it is worth more than any other point on this page.

An investor offers a pre-money of 8,000,000 and asks for a 10 percent unallocated pool at closing. Both statements sound like separate requests. They are not: because the pool is created out of the pre-money, the second request reduces the value of the first by exactly the pool percentage of the post-money. Here that is 1,000,000, or 12.5 percent of the headline valuation, transferred without any change to the number everyone is arguing about.

The counter is not to refuse a pool — a company that cannot grant options cannot hire — but to negotiate its size against a real hiring plan rather than a convention. A pool sized for eighteen months of specific, named roles is defensible. A pool sized at a round number because that is what the last deal had is a valuation reduction with a human resources justification. Founders who cannot avoid the structure often push instead for the pool to be sized post-money, which shares the dilution with the incoming investor.

The same logic applies to anything else converting into the round. Convertible notes and simple agreements for future equity from earlier funding usually convert at a discount or a cap, and those shares also come out of the pre-money unless the term sheet says otherwise. Working the numbers through the equity dilution calculator after this one shows the effect on each individual holder.

Why Price Per Share Is the Honest Number

Valuations are compared endlessly and price per share almost never is, which is backwards. The valuation is a headline that depends on how the share count was defined; the price per share is what the investor actually paid for a unit of the company.

Two rounds at an identical 8,000,000 pre-money can strike at very different prices depending on the pool, on whether convertibles were counted, and on whether the share count was fully diluted or only issued. In the defaults the price moves from 1.3333 to 1.1667 — a 12.5 percent difference — purely on the pool treatment, with the headline valuation untouched.

Price per share is also the figure that determines whether a later round is up or down, since that comparison is made on price rather than on valuation. A company can raise at a higher post-money and still price below its previous round if the share count has grown faster than the valuation, and preferred shareholders with anti-dilution protection will notice immediately even when the press release does not.

What a Valuation Does and Does Not Mean

A post-money valuation is the price of the shares just sold, multiplied by every share in existence. It is not an appraisal, and treating it as one leads to consistently poor reasoning.

Three qualifications matter. The price was paid for preferred shares carrying liquidation preferences, participation rights and protective provisions that ordinary shares do not have, so multiplying the preferred price by the common share count overstates what the common is worth. The price also reflects a negotiation between a small number of parties rather than a market, and it embeds an expectation about a future that has not happened yet. And the valuation says nothing about the cash position — a high valuation with four months of runway is a weaker position than a lower one with two years, which is why the startup runway calculator and the burn rate calculator belong in the same conversation.

For an operating business rather than a venture round, valuation is usually approached from cash flows or multiples instead, which is the job of the business valuation calculator and the DCF calculator. The Small Business Administration's guidance on how to fund your business sets out how venture capital differs from debt funding and what investors expect in exchange for equity, and MIT's OpenCourseWare course Finance Theory I covers the present value relations underlying every valuation method.

Planning Several Rounds Ahead

Founders usually model one round. The dilution that matters is cumulative, and it multiplies rather than adds.

Take founders starting at 100 percent. A seed round taking 20 percent with a 10 percent pool leaves them at 70 percent. A Series A on the same terms leaves 70 × 0.70 = 49 percent. A Series B leaves 34.3 percent. Three ordinary rounds, none of them aggressive, and two-thirds of the company has moved — before any founder departures, secondary sales or option grants to executives.

Two consequences follow. Raising more than needed at an early stage is expensive in a way the headline valuation conceals, because early dilution is diluted again by every subsequent round. And the pool top-up recurs: investors typically want the pool replenished at each round, so the same mechanism applies repeatedly. Modelling three rounds at once, even crudely, gives a far better sense of where a cap table ends up than optimising a single term sheet in isolation.

Common Mistakes to Avoid

• Not asking whether the pool is pre-money or post-money — the answer moves founder ownership by several points at no change to the headline.
• Using issued shares instead of fully diluted — options, warrants and convertibles all count, and omitting them understates dilution.
• Comparing valuations without comparing price per share — the same valuation can strike at very different prices depending on the share count.
• Treating post-money as company worth — the price was paid for preferred shares with rights that ordinary shares do not carry.
• Modelling one round in isolation — dilution compounds across rounds, so early percentages are diluted again every time.

Related Free Tools From Arb Digital

Use the equity dilution calculator to apply this round to an existing cap table, the business valuation calculator for a revenue or earnings-based view, the DCF calculator for the cash flow route, the burn rate calculator and startup runway calculator to size the raise, and the WACC calculator when debt is part of the funding mix. The free online tools hub lists everything else.

Frequently Asked Questions

This calculator performs arithmetic on figures you supply and is provided for general information only. It is not financial, investment or legal advice, and the terms of a funding round have effects beyond ownership percentages — take professional advice before signing anything.