Post-Money Valuation

Post-money valuation is used to calculate how much of the company each investor owns after a funding round. An investor's ownership percentage equals the amount they invested divided by the post-money valuation.

For example, a start-up valued at 16 million before a funding round raises 4 million. Its post-money valuation is 20 million. The new investors own 20% of the company.

The price per share in the round can be calculated by dividing the pre-money valuation by the number of shares outstanding before the investment, usually on a fully diluted basis including options set aside for employees.

Headlines about start-up valuations, such as a company being valued at a billion dollars, usually refer to post-money valuations. These figures can be misleading, because investors in later rounds often receive special rights, such as liquidation preferences, that make their shares more valuable than ordinary shares. The headline valuation assumes every share is worth the same price as the newest shares, which may overstate what the company as a whole is really worth.