Raising Capital: What Pre-Money, Post-Money, and Dilution Actually Mean for Founders.

Raising capital is one of the most important — and misunderstood — moments in a startup’s life. It feels like a significant milestone (and it is), but it’s also when the math really starts to matter.

As a founder, you’ve probably heard investors talk about pre-money and post-money valuations. You might even know your “cap table” needs to be updated after each raise. But do you know precisely how your ownership changes as a result?

Let’s break it down simply — no jargon, no legalese — just clarity.

🧠 What Is Pre-Money vs. Post-Money Valuation?

• Pre-money valuation is how much your company is worth before the new money comes in.

• Post-money valuation is how much your company is worth after adding the new investment.

Here’s the simple formula:

Post-Money Valuation = Pre-Money Valuation + Investment Amount

👉 Example:

If your company has a pre-money valuation of $4 million, and an investor puts in $1 million. In that case, the post-money valuation becomes $5 million.

🔍 So, What Does That Mean for You as a Founder?

When you raise money, you’re issuing new shares to investors. You’re not handing over your own — you’re making more of the pie. But that means your slice gets smaller.

This is called dilution:

The reduction in ownership percentage that happens when new shares are issued.

🍕 The Startup Pie Analogy

Imagine your company is a pizza with 100 slices (shares). You and your co-founder own all of it.

Now, you bring in an investor who wants 20% of the company.

To do that, you don’t take slices off your plates; you bake more pizza. You issue new slices, bringing the total to 125 slices. The investor gets 25 slices (20%), and you own less than before.

You didn’t lose slices — but you now own a smaller percentage of the whole.

📉 How to Calculate Dilution

Let’s walk through an example:

• You and your co-founder own 1,000,000 shares total.

• Your startup is valued at $4M pre-money.

• You raise $1M from a VC.

• That investor wants 20% of the company.

To give them 20% after the round, you issue:

Now the cap table looks like this:

You’ve been diluted from 100% ownership to 80%.

⚠️ Is Dilution a Bad Thing?

Not necessarily. Not necessarily. Dilution is expected — and sometimes necessary — to grow faster, hire better, and create a more significant outcome for everyone.

What matters is what the money enables.

If 20% dilution helps grow your business 10x, you’ll be better off with a smaller slice of a much bigger pie.

But you do need to:

• Understand how much you’re giving away

• Model multiple rounds of dilution

• Keep an eye on your future ownership (especially if you’re planning Seed → Series A → Series B, etc.)

🛠 How Founders Can Stay Smart About Dilution

• Model your cap table before and after each round.

• Always compare equity given to the value gained.

• Think long-term: avoid over-diluting early when valuations are low.

• Don’t get too fixated on % ownership — instead, focus on increasing company value and alignment with your investors.

🧭 Final Thought

Raising capital is more than closing a round—it is choosing your partners and reshaping your company’s future. The best founders understand not just how much money they’re raising but also

Dilution isn’t the enemy — confusion is.

Get clear on the math, and you’ll stay in control of your own story.

I hope you enjoyed this article.

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