Translate pre-money and post-money offers into the same share model

An offer to invest $4 million at a $16 million valuation is incomplete until the parties say whether $16 million is measured before or after the investment. The SEC Small Business Advocate's glossary distinguishes pre-money and post-money values and demonstrates that the choice changes the ownership sold. Confirm the convention before comparing competing offers.

Also identify the transaction being priced. A primary issuance brings new cash into the company; a transfer of existing shares may pay an existing holder. Convertible instruments, an option-pool change or several share classes can require additional calculations. Begin with the agreed terms rather than assuming the headline value settles every economic question.

For a hypothetical comparison, assume eight million existing fully diluted share equivalents, a $4 million primary investment and no conversion, pool increase or other issuance. Treat every share equivalent alike solely for the ownership calculation. Offer A quotes $16 million pre-money, so the implied post-money value is $20 million. The investor buys 20%.

Offer B quotes $16 million post-money. Its implied pre-money value is $12 million and the investor buys 25%. Dividing the pre-money value by eight million share equivalents gives a $2 price under A and $1.50 under B. The investment buys two million new shares under A and about 2.667 million under B, before applying agreed whole-share rounding.

A fully diluted share count is a modeling definition that needs agreement. List the issued shares, options, warrants, reserved pool and converting instruments included or excluded. Ask counsel to resolve the definition used for pricing. A spreadsheet labeled fully diluted is not evidence that both parties used the same denominator.

Trace an existing holder through the model. A holder of six million of the assumed eight million equivalents starts at 75%. That holder ends at 60% under A and 56.25% under B. This calculation exposes the effect more clearly than comparing valuation headlines alone. It does not establish voting power or sale proceeds, which can depend on separate rights.

Keep fractions unrounded while checking the model, then apply the documented issuance convention at the end. Verify that the new investment equals the agreed price multiplied by issued shares, allowing for the stated rounding treatment. Sum the final ownership percentages to 100% on the same basis.

The company receives $4 million gross in both examples. Fees or required payments could reduce usable proceeds without changing the negotiated share count. Show that cash bridge alongside the capitalization so a larger implied value is not mistaken for a larger operating cash balance.

Have the advisers compare liquidation preferences, participation, voting provisions and other material terms independently. Two offers with identical ownership percentages can give investors different outcomes or control rights. The share model answers who owns what under the stated assumptions; it cannot rank the complete contracts by itself.

Avoid using the financing valuation as an automatic price for employee options, a tax conclusion or an independent appraisal of every security. Give those specialists the actual class rights and transaction facts. The negotiated price is evidence for their review, not a substitute for it.

Preserve one clearly dated capitalization for each offer and a list of differences. Recalculate when the investment amount, pool requirement or conversion terms change. Do not overwrite the old offer's share count while leaving its valuation in a summary table.

Before approval, ask finance and counsel to reconcile the chosen model to the transaction documents. Management should be able to state the gross primary cash, resulting shares and ownership, and the economic rights requiring separate consideration. That is a reviewable financing decision rather than an ambiguous valuation headline.