Valuation shapes every big call you make in finance. It sets the stage for how much equity you offer in a funding round, guides talks with investors, and lets you measure your company’s momentum. But valuation isn’t just a number. It’s a set of metrics. Each one tells a different part of your company’s story.
Pre-money valuation, post-money valuation, and enterprise value have different jobs. Pre-money shows what investors think you’re worth before they invest. Post-money tells you what you’re worth after the money comes in. Enterprise value shows your full economic value, including debt and cash along with equity.
You need all three, in every term sheet, board conversation, M&A chat, and strategy session. This guide shows you the formulas, shares key considerations, and tells you how to calculate and track these numbers in Runway.
Understanding pre-money valuation
Pre-money valuation is what your company’s worth right before new money lands. It sets the baseline. Investors get their ownership based on this number.
Pre-money impacts how much equity founders keep. The higher the pre-money, the less equity you give up for the same investment. It sets benchmarks for future rounds too. Investors will always check your previous pre-money to see how you’ve grown.
Pre-money valuation pops up in every chat with investors. It’s more than a number on a page, it reflects your traction, opportunity, and growth.
Key formulas for pre-money valuation
Most teams use this formula:
Pre-money valuation = Post-money valuation - Investment amount
Say your post-money is $10 million and you raise $2 million. Your pre-money is $8 million. Simple math, but you need the post-money number first.
You can calculate it by price per share:
Pre-money valuation = Price per share × Pre-investment fully diluted shares outstanding
This method uses the share price investors agree to pay and your total share count before the investment. It comes in handy if you’re haggling over share price.
Or work backwards from ownership:
Pre-money valuation = (Investment amount × (1 - Ownership percentage)) / Ownership percentage
If an investor puts $3 million in for 20% equity, pre-money is ($3M × 0.80) / 0.20 = $12 million. You’ll see this method if someone leads with an ownership target instead of a valuation.
Sometimes you’ll have to reverse-engineer it from the term sheet economics. If the sheet says investors will take 25% ownership after investing $5 million, post-money is $20 million ($5M / 0.25). Pre-money is $15 million.
Practical considerations for pre-money valuation
Which share count you pick matters. Fully diluted shares count everything: issued shares, options, warrants, convertibles that could become shares. Basic shares only count what’s issued now. Use fully diluted; anything else misses dilution and can cause confusion.
Option pools add complexity. Many term sheets call for a certain option pool after investment. If you need to create or expand the pool, that comes out of pre-money value and reduces founder ownership. This is often called the “option pool shuffle.”
If you have convertible notes or SAFEs, converting them in a priced round increases your share count and changes the pre-money math. Model the conversions, including discounts or caps, to get the true pre-money with everything converted.
Prior rounds might have anti-dilution terms. These can lower conversion prices if you raise at a lower valuation. They help early investors, but dilute founders and others. Track all these adjustments.
Secondary transactions, where founders or employees sell shares to investors, don’t change valuation directly. But they shift the cap table and change how investors see your company’s value.
Early-stage companies face their own challenges. Without strong revenue or good comparables, pre-money valuation is about team, market, and traction, not hard financials. Negotiations here are less about spreadsheets and more about storytelling plus facts.
Delving into post-money valuation
Post-money valuation is what your company’s worth right after fresh capital hits the bank.
This number sets investor ownership. If you raise $5 million at a $25 million post-money, those investors own 20% ($5M / $25M).
Post-money sets the bar for your next round. New investors will look back at it to see how much you’ve grown. A jump here looks great in the next pitch. Flat growth is a warning sign.
Key formulas for post-money valuation
The classic formula is simple:
Post-money valuation = Pre-money valuation + Investment amount
If pre-money is $15 million and you raise $5 million, post-money is $20 million. It’s the approach you’ll spot most often on term sheets.
There’s also the price-per-share method:
Post-money valuation = Price per share × Post-investment fully diluted shares outstanding
This keeps everything aligned. Share price times the new, bigger cap table after the round.
Or use the ownership method:
Post-money valuation = Investment amount / Investor ownership percentage
If investors put $8 million in for 25%, post-money is $32 million. This works well when ownership stake leads the negotiation.
SAFEs and notes with valuation caps convert based on their caps. If your SAFE has a $10 million cap and converts in your round, it’s as if the post-money is $10 million for those investors. If your round closes higher, SAFE holders still convert at the cap.
Practical considerations for post-money valuation
Account for all investors in the round. All their capital goes into the total investment amount. If current investors also put in more, that’s included too. The formula doesn’t change.
Multiple closes or investments in tranches need careful tracking. If you raise $3 million now and $2 million later, decide whether to do the post-money after each close, or count it all in one round. The method affects reporting and impacts your fundraising story.
Raising the option pool as part of a round affects post-money valuation. If your term sheet sets a 15% option pool, include it in the fully diluted share count. That way, everyone sees the true picture of ownership.
If you have multiple security types such as common, preferred, convertibles, model the full cap table, including differences in rights. Each one may have its own impact on post-money math.
The fundamentals of enterprise value (EV)
Enterprise value tells you what it costs to buy the whole company. It’s your total value, with both assets and what you owe included.
EV is different from equity value. Equity value is what shareholders get. EV is the full business value, assets plus liabilities. It lets you compare any business, no matter how they’re financed. It’s the main metric for M&A and market comps.
Investors and buyers use EV to get value multiples like EV/EBITDA and EV/Revenue. This helps compare apples to apples for different companies. Debt-heavy and debt-free firms can line up side by side using EV multiples. Equity multiples often miss the mark.
Key formulas for enterprise value
The standard formula is:
Enterprise value = Equity value + Total debt - Cash and cash equivalents
Start with equity value, add all debt, take away cash on hand. If equity value is $50 million, debt is $10 million, and cash is $5 million, the EV is $55 million.
The expanded view includes more claims:
Enterprise value = Equity value + Total debt + Preferred stock + Minority interests - Cash and cash equivalents
If preferred stock has debt-like features or you have subsidiaries with minority owners, include those too.
For public companies, find equity value by:
Market cap = Share price × Shares outstanding
Private companies get equity value from the last funding round or a valuation. Usually that’s the latest post-money, maybe with tweaks if things have changed.
For M&A, use total enterprise value:
Total enterprise value = Equity value + Debt + Preferred stock + Minority interests + Unfunded pension liabilities - Cash
This makes sure buyers see the full cost, including less obvious liabilities.
Practical considerations for enterprise value
Valuing private equity starts with the last funding round, but you need to adjust for recent market shifts to keep numbers realistic. Get a precise valuation by reviewing these key components:
- Debt coverage: Account for every obligation, including loans, bonds, leases, convertible notes, and off-balance sheet commitments.
- Usable cash: Only subtract accessible cash and liquid securities. Ignore restricted funds like escrow.
- Preferred shares: Add shares to enterprise value if they act like debt, such as those with mandatory redemption or accrued dividends.
- True costs: Include minority interests and unfunded pension liabilities to capture the full picture.
- Complex securities: Standardize the value of convertibles and warrants by treating them as full value, common equivalents, or debt.
Connecting the dots between these three valuations
Pre-money and post-money are like bookends to funding. Pre-money is your starting point; post-money is the result after that round. The relationship is direct: post-money equals pre-money plus the new checks.
Right after a round, equity value usually matches your post-money number. Over time, equity value moves as results change or markets shift. Post-money is just a snapshot. Equity value updates with the real world.
Enterprise value builds from equity value by adding debt and subtracting cash. If you have little debt or cash, both are about the same. As you grow and take on more debt or boost cash reserves, EV rises beyond equity value.
Ownership dilution links them all. Raising capital grows your post-money but shrinks your percentage. The difference between pre-money and post-money shows you this change. EV sums up the value for everyone, both owners and lenders.
Your cap table holds everything together. It tracks who owns what, which feeds equity value. It also forecasts dilution from convertibles, which move both pre- and post-money. Fully diluted shares matter for every calculation.
Investors look at all three values to gauge returns. They compare their entry post-money number to estimated exits built from EV multiples. When you understand and track each one, you stay in control during negotiations and planning.
Benchmarks, pitfalls, and market norms
Valuation norms fluctuate based on stage and market sentiment. Pre-seed rounds typically range from $2 million to $10 million, while Seed rounds hit $5-15 million. Investors usually target 15-25% ownership at Seed and 20-30% at Series A. Sector multiples vary wildly too. AI SaaS companies may trade at 20× ARR, whereas general SaaS lands near 10-15x and slower growth models sit at 8-12x EBITDA.
You can keep your valuation models accurate and your negotiations clean by following a few key principles.
- Clarify value definitions. Specify pre-money versus post-money early to avoid costly misalignment. Distinguish enterprise value from equity value for accurate M&A comparisons.
- Track true ownership. Calculate fully diluted share counts including warrants and options. Model convertible notes and the option pool impact directly since these often dilute founders first.
- Refine enterprise value. Include capital leases and preferred shares as debt claims. Deduct only available cash rather than restricted funds.
- Plan for growth. Normalize capital structures with EV multiples for fair comparisons. Set a valuation expectation you can beat to ensure future fundraising success.
How to calculate pre-money, post-money, and enterprise value in Runway
You can build a dynamic valuation model that helps you simulate different fundraising scenarios instantly. By setting up a few core drivers and formulas, you create a system that updates automatically as your inputs change.
Set up your valuation drivers
Start by creating a new Model called "Valuation & Cap Table." You'll need to create Number-type drivers to handle your key inputs.
Add these drivers to your model:
- Round Share Price
- New Capital Raised
- Pre-Round Fully Diluted Shares
- Cash & Cash Equivalents
- Total Debt
Enter your current values directly into the cells for the month the round occurs. Formulas basics allow you to mix hard-coded values and formulas within the same driver.
Calculate share issuance and equity value
Next, you need to calculate how the round affects your cap table. Create a driver for New Shares Issued and use Runway's Functions & operators to write this formula:
New Shares Issued = New Capital Raised / Round Share Price
Calculate your Post-Round Fully Diluted Shares by adding New Shares Issued to your pre-round share count.
With those share counts ready, you can determine your equity value. Create a driver for Pre-Money Equity Value and multiply your pre-round shares by the share price. For Post-Money Equity Value, you can either multiply your post-round shares by the price or simply add the new capital raised to your pre-money value.
Restrict values to the round date
If you want these valuations to appear only in the specific month the round closes, use conditional logic. Create a date driver called Round Close Month. Then, update your value formulas using an IF statement. You can see more on Formulas syntax here.
Pre-Money Equity Value = IF(thisMonth() == Round Close Month, Pre-Round Fully Diluted Shares * Round Share Price, NULL)
Calculate Enterprise Value (EV)
To define your Enterprise Value, you first need to calculate Net Debt. If your GL data is already in a database, aggregate your cash and debt accounts using sum() over the relevant segments. This works just like Building a P&L.
Create a Net Debt driver that subtracts Cash & Cash Equivalents from Total Debt. Finally, create your Enterprise Value driver:
Enterprise Value = Post-Money Equity Value + Net Debt
To limit this calculation to finalized financial periods, use lastClose() to gate the formula. Read more about Last close logic to keep your reporting clean.
Compare scenarios side-by-side
The real power comes from testing different outcomes. Create scenarios for various round sizes or share prices. Because scenarios in Runway act as frozen versions of the same model, standard scenarios let you see the impact immediately.
Add a driver table block to your page and pull in your equity and EV drivers. Use the Compare feature to view these values across different scenarios side-by-side, following the same workflow used for Budget vs. actuals.
Take control of your financial story
Understanding pre-money valuation, post-money valuation and enterprise value turns a negotiation from a guessing game into a strategic discussion. You gain clarity on every round and build trust with your investors. The formulas may be straightforward, but the nuances matter. Keep an eye on your fully diluted shares and option pools to avoid nasty surprises. When you get the details right, you stay in the driver's seat.
Runway moves valuable data out of fragile spreadsheets. You get a live, scenario-driven model that evolves with your business. You see clearly, plan faster, and keep your team aligned.
Ready to build smarter valuation models and take charge of your company’s financial story? Get started with Runway.