Pre-Money vs Post-Money Valuation: What Founders Need to Know

Last Updated on 17/09/2026 by Damin Murdock

Understanding pre-money vs post-money valuation is essential for founders raising capital through a Simple Agreement for Future Equity (SAFE), Convertible Notes (Notes) or a priced equity round. The valuation framework used can significantly affect how ownership is calculated, who bears dilution and how an employee share option plan (ESOP) impacts the company’s cap table. For founders, the difference between pre-money and post-money valuation can ultimately determine how much of the company they retain as additional investors and employees receive equity.

What do Pre-Money and Post-Money Valuations Mean?

A pre-money valuation represents the company’s value immediately before new capital is added.

A post-money valuation represents the company’s value immediately after the investment is added.

The distinction matters because it determines:

• Whether investor ownership is fixed or variable;
• How conversion prices are calculated for SAFEs and Notes; and
• Who absorbs dilution from additional convertible instruments or option pool increases.

Pre-money structures keep investors’ ownership variable, whereas post-money valuations fix investor ownership at the moment of investment.

In a Pre-Money SAFE, is the SAFE Money included in the Fully Diluted Definition?

Under a pre-money SAFE, the SAFE investment amount is excluded from the fully diluted capitalisation. The denominator typically includes existing shares and the entire ESOP (vested, unvested and often unallocated). It does not include the SAFE itself, other SAFEs or Notes. Because the SAFE is excluded from the denominator, SAFE investors dilute each other, together with the founder and other existing investors.

Are Unvested, Unallocated or Vested Employee Options Included in the Fully Diluted Definition?

Across SAFEs, Notes and priced rounds, the entire ESOP is generally included in the fully diluted capitalisation, which includes vested options, unvested options and unallocated, plus authorised options. The ESOP represents equity that may ultimately be issued at a later date, so it is accounted for when calculating conversion prices and ownership percentages.

Under a pre-money structure, this dilution is shared among all investors because their ownership is not fixed.

Under a post-money structure, the founder and other existing shareholders absorbs the full effect of the dilution because the investor percentages are protected.

Under a Post-Money Valuation, How Is the ESOP Treated?

Post-money structures fix the investor’s ownership percentage at the time the SAFE, Note or priced round is agreed. The consequences of this include:

• Any increase to the ESOP dilutes only the founder and existing shareholders;
• The investor’s percentage remains constant regardless of additional SAFEs, Notes or ESOP expansions; and
• In post-money priced rounds, the investor often requires the ESOP to be increased (for instance, at least 10% remaining as unallocated) before the round closes, shifting all dilution of the increased ESOP to the founder and other existing shareholders.

Which is Better for a Founder: Pre-Money or Post-Money?

For founders and existing shareholders, pre-money structures are generally more favourable across SAFEs, Notes and priced rounds. 

Why Pre-Money Is Better for Founders

• Investor ownership is not fixed until the priced round;
• Dilution from multiple SAFEs or Notes is shared among investors, not concentrated on the founder and the existing shareholders;
• ESOP dilution is shared, not pushed entirely on the founder and existing shareholders; and
• Founders and existing shareholders retain more flexibility in managing the cap table before the priced round.

Why Post-Money Favours Investors

• Investor ownership is locked in upfront;
• Any additional SAFEs, Notes or ESOP dilute only the founder and existing shareholders; and
• Dilution compounds as more instruments are issued.

The choice between pre-money and post-money valuation frameworks has significant long-term implications for founder ownership. Pre-money structures distribute dilution across all early investors and preserve founder flexibility. Whereas, post-money structures protect investor percentages and concentrate the dilution on the founder and existing shareholders, particularly when multiple instruments are issued or when the ESOP is expanded. Pre-money valuations give founders stronger protection and a more balanced dilution outcome when raising early-stage capital.

Generally, if you have the ability to dictate the terms, we recommend founders to press for pre-money valuations, but obviously this will depend on your existing capitalisation table, whether you have an existing ESOP, how many SAFEs and Notes have been issued that have not converted, and how much and from whom you are receiving the funds from in your next priced round.

If you have any questions, feel free to contact Damin Murdock at Leo Lawyers via our website, on (02) 8201 0051 or at office@leolawyers.com.au. Further, if you liked this article, please subscribe to our newsletter via our Website, and subscribe to our YouTube , LinkedIn, Facebook and Instagram. If you liked this article or video, please also give us a favourable Google Review.

DISCLAIMER: This is not legal advice and is general information only. You should not rely upon the information contained in this article and if you require specific legal advice, please contact us.