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L.2 · INTERMEDIATE · 2 MIN

Pre-Money, Post-Money, and the Math of Ownership

When a VC invests, two numbers define the deal: pre-money valuation (what the company is worth before) and the investment amount. The math of ownership dilution from these two numbers shapes everything in startup investing.

Quiz · 5 questions ↓

Formula

Post-Money = Pre-Money + Investment | Ownership = Investment / Post-Money

Compare

RoundPre-MoneyInvestmentPost-MoneyNew Investor Owns
Seed$5M$1M$6M16.7%
Series A$20M$5M$25M20%
Series B$80M$20M$100M20%
Series C$300M$50M$350M14.3%

Key point

Each round dilutes previous shareholders. A founder who starts with 100% might own 40–50% after Series A, 25–35% after Series B, and 15–25% by IPO. This dilution is the cost of growth capital.

Try it

Look at a recently-IPO’d company’s S-1 filing. Check the founders’ ownership percentage — it reveals how much dilution occurred through all funding rounds.

Check-in

A founder owns 60% after the seed round. Series A dilutes everyone by 20%. What does the founder own now?

Key insight

Dilution is multiplicative. If each round dilutes by 20%, after 4 rounds you retain 0.8⁴ = 41% of your original stake, not 80% minus 4×20%. Understanding this math is essential for founders and early investors.

Check-in

A startup raises $5M at $20M post-money valuation. What's the pre-money valuation, and what percentage do new investors own?
Check your understanding

Sit with the ideas.

A startup has a $40M pre-money valuation. It creates a 10% option pool (from pre-money shares) and then raises $10M. What is the effective pre-money valuation for existing shareholders?

Why:
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