Pre- versus post-money
A €9m pre-money deal with €3m new investment implies a €12m post-money valuation; the investor initially owns 25% before other unmodeled instruments.
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Startup Money · Negotiating a financing round
THE HIGHEST VALUATION ISN'T ALWAYS THE BEST DEAL.
Two term sheets can offer the same cash at different valuations—and deliver very different proceeds to founders and employees. Model the whole deal, not just the headline number.
Founders' Playbook · Fictional examples · Last reviewed 14 October 2026
A founder trap
VALUATION IS A PRICE. THE TERM SHEET IS A CONTRACT.
A higher pre-money valuation usually means less initial ownership sold for the same investment. But it does not tell you what happens at an acquisition. A larger employee option pool, an investor preference, a restrictive clause or convertible securities can materially change the outcome.
This does not mean founders should always accept the lowest valuation. A financing partner can add substantial value, and real legal rights are more complex than a simplified exit waterfall. The lesson is to evaluate comparable terms and realistic outcomes before celebrating a headline.
The clauses beneath the valuation
SIX THINGS THE HEADLINE DOESN'T TELL YOU.
Option-pool expansion
A pool created before the priced round typically dilutes existing holders rather than the new investor. Specify whether it is a new pool, an incremental top-up or a target post-money pool.
Liquidation preference
Preferred shareholders may collect an amount ahead of common shareholders when the company is sold or liquidated. The multiple and whether they convert to common matter.
Participating preferred
Certain deals let the investor recover a preference and then participate in the remaining proceeds. Uncapped participation can reduce common-holder payouts even at a higher headline valuation.
Future-round protection
Anti-dilution adjustments, pro-rata rights, pay-to-play terms and convertible instruments influence ownership in later rounds. They are intentionally outside this first simulator.
Governance and control
Investor vetoes, board composition, founder vesting, information rights and restrictions on an acquisition can be economically important without showing up in a share percentage.
Terms are jurisdiction- and document-specific. The NVCA model documents provide optional formulations of venture financing rights; they are starting points for legal drafting, not a universal standard or a promise of enforceability in every country.
Before touching the simulator
WHAT DOES “1× NON-PARTICIPATING” MEAN?
PREFERENCE OR COMMON. NOT BOTH.
At exit, the investor gets the better of its agreed preference or the amount it would receive if it converted to ordinary shares. If it takes the preference instead of converting, the remaining value goes to common holders. This protects the investor at modest exits without allowing a second full share of the leftover proceeds.
PREFERENCE, THEN A SHARE OF THE REST.
With uncapped participation, the investor receives its preference first, then participates in the remaining proceeds according to its ownership. Participation caps, dividend rights and different preferred series can substantially modify this math. The simulator intentionally excludes those complexities.
Interactive deal lab · Fictional terms
TWO OFFERS. WHO REALLY WINS?
Change the proposed valuation, option-pool allocation, liquidation preference and exit value. Compare founders' actual theoretical cash proceeds—not just the percentage printed on the term sheet.
SHARED STARTING POSITION
Try an outcome:
Founders and other existing holders jointly own 100% before this round. The new option pool is carved from all existing holders before new money is issued. All pool shares are treated as granted and participating in exit proceeds. Changing currency only changes denomination, not exchange rates.
Offer A
HIGHER VALUATION
Founders after round
54.40%
New investor ownership
20.00%
Founder payout at this exit
€6,528,000
Exit proceeds allocation
Founders€6,528,000
Other existing holders€1,632,000
New option pool€1,440,000
New investor€5,400,000
Preference claim: €3,000,000. Actually paid as preference: €3,000,000. The investor also receives an ownership share of the balance.Total allocated: €15,000,000.
Offer B
CLEANER TERMS
Founders after round
54.00%
New investor ownership
25.00%
Founder payout at this exit
€8,100,000
Exit proceeds allocation
Founders€8,100,000
Other existing holders€2,025,000
New option pool€1,125,000
New investor€3,750,000
Preference claim: €3,000,000. Actually paid as preference: €0. The investor instead chose as-converted common proceeds.Total allocated: €15,000,000.
The founder-outcome comparison
OFFER B PAYS FOUNDERS MORE.
At this hypothetical exit, founders receive €1,572,000 more under Offer B, despite different headline valuations.
Offer A · Founder payout
€6,528,000
The new investor receives €5,400,000.
Offer B · Founder payout
€8,100,000
The new investor receives €3,750,000.
Important limitations: This is a simplified one-round waterfall. It assumes an existing common equity structure (founders and other shareholders), one new class of preferred shares and a brand-new pre-money pool. Unallocated employee options are treated as fully granted shares for comparison. It does not model existing preferred investors, vesting/exercise prices, SAFEs, CLNs, multiple liquidation seniorities, participation caps, accrued dividends, future rounds, debt, transaction fees or taxes. A real exit requires reviewing the signed legal documents and local law. Nothing in this tool is a recommendation to accept or reject either offer.
Interpret the default example
A HIGHER VALUATION. A LOWER FOUNDER PAYOUT.
In the simulator's fictional defaults, founders initially own 80% of the company. Offer A raises €3m at €12m pre-money, requires a new 15% pre-money pool and grants 1× uncapped participating preference. Offer B raises the same €3m at €9m pre-money, adds a 10% pool and uses 1× non-participating preference.
Offer A · €12m pre-money
€6.528m
Founder payout at an illustrative €15m equity exit. Founders retain 54.4% of fully diluted post-round equity, but the participating investor receives its preference first.
Offer B · €9m pre-money
€8.100m
Founder payout from the same exit value. Founders retain 54.0%, but the investor elects to convert and shares proceeds pro rata.
This simplified example does not imply that participating preference is standard or that a higher valuation is usually worse. It demonstrates the need for an apples-to-apples comparison, including the allocation and timing of the employee pool and the preferred payout at the exit values you consider plausible.
A better investment committee for your own company
COMPARE THE COMPLETE OFFER.
Normalize the offers
Put each offer on the same pre-money basis, cheque amount, option-pool timing and share-class assumptions.
Build the cap table
Compute post-round ownership for the founders, existing holders, option pool and new investors. Identify all convertibles not yet reflected.
Run several exits
Test downside, moderate and upside outcomes. Compute preference waterfalls, conversion decisions and cash available to each stakeholder.
Read the control terms
Verify consent rights, pro-rata, board composition, anti-dilution, vesting and liquidity clauses before negotiating.
Evaluate the partner
Consider investor quality, follow-on capacity, recruiting support, milestones and certainty of funds, not only a simulated founder payout.
Have counsel review
Use qualified local counsel to turn the commercial terms into coherent legal documents and catch interactions the simplified model omits.
Assignment · 30–40 minutes
DEFEND YOUR CHOICE IN ONE PAGE.
Imagine that a deep-tech team must choose between the two fictional terms above. Change the exit value to €5m, €50m and €200m. For each scenario, document the post-round ownership, preference payouts and founder proceeds. Then change the option-pool assumption and describe what you learned.
Finish by writing an investment decision memo explaining which questions remain unresolved: future funding needs, existing option grants, investor follow-on capacity, legal protections, tax effects, and how likely each possible outcome is. There is no single numerical answer; a good decision defends its assumptions and acknowledges uncertainty.
WHAT IF YOUR OWN SHAREHOLDERS ALSO INCLUDE A UNIVERSITY?
The same math becomes more complex when academic IP stakes, royalties or convertible investments are involved. Compare the specific rights and stakeholder incentives before applying any investment rule of thumb.
University Equity & IP guideSOURCES & LIMITATIONS.
The model is a teaching aid, not a financial forecast or legally complete distribution waterfall. The distinction between participating and non-participating liquidation preferences is drawn from venture-financing model legal documents, while the valuation, option-pool and preferred-stock vocabulary is described in startup fundraising guides. Every deal depends on actual contractual language and applicable law.
- NVCA — Model Legal Documents (venture financing templates)
- Y Combinator — A Guide to Seed Fundraising
- Y Combinator — Post-money SAFE financing documents and explanation
Last reviewed 14 October 2026 · Hypothetical numbers · Not legal, tax, accounting or investment advice. The calculator excludes convertible securities, prior preferred classes, vesting, future rounds, preference caps, board rights, taxes and transaction costs.