What is the difference between pre-money and post-money valuation?
Pre-money is what the company is worth before the new investment lands. Post-money is pre-money plus the money raised. An investor's stake is measured against the post-money figure, not the pre-money one.
How it works
Post-money valuation = pre-money valuation + investment.
Investor's share = investment / post-money valuation.
Raise $2M at an $8M pre-money and the post-money is $10M, so the investor owns 20%.
Where it costs you
Agreeing a valuation without saying which one it is. "A $10M valuation" on a $2M raise means 20% if that number is post-money and 16.7% if it is pre-money. That gap comes out of the existing shareholders.
Say which one you mean in the first conversation, not in the term sheet.
The one thing that changes it
The option pool. If the round creates or increases a pool before it closes, that pool sits inside the pre-money valuation and the existing shareholders carry it.
The same words mean something else on a SAFE
Pre-money and post-money also turn up on SAFEs, where they describe which securities count in the conversion denominator rather than a valuation. They are not the same idea, so try not to read one across to the other.