Pre-money valuation is what your company is worth before an investment goes in. Post-money is that figure plus the money raised. The investor's share is the amount raised divided by the post-money valuation, so raising £1m at a £4m pre-money means a £5m post-money and 20% of the company gone. Agreeing a number without saying which one you mean is an expensive ambiguity.
Post-money = pre-money + amount raised. Investor share = amount raised ÷ post-money. The same headline number means very different things depending on which word follows it: £1m at £4m pre-money is 20% dilution, while £1m at £4m post-money is 25%.
That gap is real equity. Always confirm in writing which basis a term sheet is quoting, because the difference is worth more than most of the other terms being negotiated around it.
Investors frequently require an option pool for future hires to be created before the round, out of the pre-money valuation. That means it dilutes the founders rather than the new investor, and it can add another 10 to 15% on top of the headline number.
Ask early whether the pool comes from pre or post money. It is a normal request, but it changes your real dilution substantially and it is far easier to negotiate before the number is agreed than after.
A single early round around 15 to 20% dilution is typical. Much more than a third for one round usually signals the valuation was too low for what you raised, and it leaves less room for the rounds that follow.
Think in terms of the whole sequence rather than this round alone. Founders who give up too much early find later rounds harder, because there is not enough equity left to motivate the team and the next investor at the same time.
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Pre-money is the company's value before the investment; post-money is pre-money plus the amount raised. £1m raised at a £4m pre-money is a £5m post-money and 20% dilution, while the same raise at a £4m post-money is 25%.
The investor's share is the amount raised divided by the post-money valuation. A single early round around 15 to 20% is normal; much over a third usually means the valuation was too low for what you raised.
Yes, and more than founders expect. Investors often require the pool to be created out of the pre-money valuation, so it dilutes you rather than them, adding perhaps 10 to 15% on top of the headline figure. Ask which basis applies before agreeing a number.
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