Pre-Money vs. Post-Money Valuation

Both figures describe the same company at two moments. The pre-money valuation is what the company is agreed to be worth just before the new money arrives. The post-money valuation is the same company just after, so it equals the pre-money valuation plus the amount invested. Y Combinator's SAFE user guide gives the standard illustration: raising $2 million at a $10 million pre-money valuation is generally the same as raising $2 million at a $12 million post-money valuation.

Four formulas do most of the work:

• Post-money valuation = pre-money valuation + new investment
• Investor ownership = new investment ÷ post-money valuation
• Price per share = pre-money valuation ÷ pre-money fully diluted shares
• New shares issued = new investment ÷ price per share

Take a company with 8,000,000 fully diluted shares raising $2,000,000 at an $8,000,000 pre-money valuation. The price is $1.00 a share, the investor receives 2,000,000 shares, the post-money valuation is $10,000,000 and the investor owns 20%.

A startup valuation is a negotiated number, not an appraisal. Under Ontario's Business Corporations Act (OBCA), shares have no par value (section 22) and the directors set the consideration for each issue (section 23), so corporate law does not fix the price; the term sheet does. It is also not the same as fair market value, the arm's length standard used in tax and formal valuations.

The price per share depends on the share count, and the count is a matter of definition. The OBCA does not define fully diluted. A term sheet usually counts issued shares plus outstanding options and warrants, the unallocated option pool and convertible securities on an as-converted basis; our cap table entry explains each line. Every item placed in the pre-money count lowers the price per share and shifts dilution onto the existing holders.

The biggest lever is the option pool. Lead investors often ask for a new or enlarged pool, sized as a percentage of the post-money company, to be created before they invest, so that future grants under an employee stock option plan dilute only the existing holders. This is often called the option pool shuffle. Using the example above, with a 10% post-money pool added to the pre-money count:

The headline valuation is identical, but the founders' effective pre-money valuation falls by $1,000,000. Founders can push back by sizing the pool to a realistic hiring plan rather than a round percentage.

Y Combinator introduced the SAFE in late 2013 with a cap based on a pre-money valuation and moved its standard form to a post-money valuation cap in 2018. Its Canadian form uses the post-money cap. The difference changes who bears the dilution.

Post-money SAFE. The holder's ownership at conversion follows a simple formula: investment ÷ post-money valuation cap. A $500,000 SAFE on a $5,000,000 post-money cap converts into 10% of the company. The cap is measured after all SAFE money and the options and pool that exist before the priced round, but before the new money and any pool increase in that round. So SAFEs do not dilute each other, each additional SAFE dilutes only the founders and other existing holders, and the SAFE holders are then diluted by the priced round like everyone else.

Pre-money SAFE. The cap is a pre-money figure, and the share count behind it can include other SAFEs and the pool increase, so the holder's percentage is not known until the round closes. YC's user guide gives the example of a $500,000 SAFE at a $4.5 million pre-money cap: the implied 10% could end up nearer 7% once other SAFEs are counted.

A convertible note converts principal plus accrued interest, so its share count grows the longer it runs. Priced rounds normally count converting SAFEs and notes in the pre-money share count, so the conversion dilutes existing holders rather than the new money; YC's guide notes that where the parties agree otherwise, the new investors receive less than the headline percentage. Our SAFE and convertible note modeler uses the simpler pre-money method, so check a post-money SAFE's result against investment ÷ cap.

Valuation is one term among several, and the others can matter more. A liquidation preference decides who is paid first on a sale. Suppose an investor puts $2,000,000 into a round at a $10,000,000 post-money valuation with a 1x non-participating preference, and the company later sells for $8,000,000. The investor takes the greater of its $2,000,000 preference or its 20% share of $1,600,000, so it takes $2,000,000 and the other holders split $6,000,000.

A higher valuation paired with a richer preference or a larger pool can leave founders worse off than a lower, cleaner offer. Compare offers on the price per share after the pool and conversions, and on the payout at realistic exit values, not on the headline number. Read the valuation together with the rest of the term sheet, and see our guide to moving from SAFEs to a priced round for the documents that follow.

Sofia Marino and Dev Patel own 8,000,000 common shares of a Toronto fintech corporation and have granted no options. In 2025 they raised $600,000 on post-money SAFEs with a $6,000,000 cap, so the SAFE holders were promised 10% before the next round. In 2026 a seed fund offers $2,000,000 at a $10,000,000 pre-money valuation, with the SAFEs counted in the pre-money and a 10% post-money option pool created before closing.

The SAFEs convert into 888,889 shares, 10% of the pre-round capitalization, at $0.675 each. The pool needs 1,212,121 shares, so the pre-money count is 10,101,010 shares and the price is $0.99. The fund receives 2,020,202 shares.

The headline is $10,000,000 pre-money, but the founders' shares are worth about $7,920,000 at the round price, because the SAFEs and the new pool both sit in the pre-money count. Using an 18-month hiring plan, their lawyer negotiates the pool down to 7%. The SAFE conversion does not change, the price rises to about $1.03 and the founders finish with 68.7%, a stake worth about $8,240,000 at the new price.