Pre-money / Post-money Valuation
Pre-money = company value before new investment. Post-money = pre-money + new money raised. Drives the investor's ownership percentage.
Pre-money and post-money valuations are the two anchors of every equity fundraise. Confuse them and your dilution math will be wrong.
The formula:
`Post-money = Pre-money + New Investment`
`Investor Ownership % = New Investment / Post-money`
Worked example — ₹40 crore investment at ₹160 crore pre-money:
- Post-money = ₹160 + ₹40 = ₹200 crore
- Investor takes ₹40 / ₹200 = 20% of the post-money cap table
- Existing shareholders collectively retain the remaining 80% — their pre-money holdings are diluted pro-rata
The same ₹40 crore at ₹160 crore post-money (note 'post' not 'pre') means:
- Pre-money = ₹160 - ₹40 = ₹120 crore
- Investor takes ₹40 / ₹160 = 25% of the post-money cap table
A 5-percentage-point swing purely on the basis of which valuation you anchored to. Founders lose materially when term sheets use 'post-money' loosely.
ESOP pool interaction — the hidden hit:
Most Indian VC term sheets size the ESOP pool post-the-round but include it in the 'pre-money' base — meaning the pool is carved out of founder/existing shareholder equity before the investor's money comes in. This is called a pre-money pool and is the dominant Indian convention. See ESOP Pool for the detailed mechanics.
If the term sheet says '20% Series A at ₹100 crore pre-money, with a 10% post-money ESOP pool', the effective pre-money to founders is ₹100 crore minus the value of the 10% pool top-up — a hidden ~10% dilution beyond the headline 20%.
Fully-diluted basis:
Valuations are always quoted on a fully-diluted basis — including the ESOP pool (post-top-up), outstanding warrants, convertibles, and SAFEs converted at the round price. Issued + outstanding basis ≠ FD basis. Read the term sheet definition carefully.
SAFE / convertible note interactions:
SAFEs and notes that convert at this round dilute everyone. The discount and cap mechanics often mean the effective investor ownership is higher than the headline 20% — model in the cap table.
Down round:
When post-money < the previous round's post-money, anti-dilution adjustments on CCPS may kick in — see Anti-Dilution Protection.
Reserved share capacity for future ESOP grants. Typically sized at 10–15% post-money. Pre-money expansion is a hidden founder-dilution cost.
Investor right that adjusts conversion price when a company issues shares at a lower price in a later round. Indian VCs typically take broad-based weighted-average.
The dominant Indian VC instrument. Preference shares that must convert to equity by a fixed date — providing downside protection plus equity upside.
US-origin convertible instrument used in Indian early-stage rounds. Tax and FEMA treatment uncertain; CCDs / CCPS often preferred for clean compliance.
Ledger of every security issued by a company — equity, preference, options, warrants, convertibles — and the ownership percentages they represent.