Pre-money and post-money
A priced round sets an explicit valuation, unlike the SAFEs and notes from Lesson 14. Pre-money valuation is what the company is worth before the new investment; post-money valuation is pre-money plus the new money raised. The relationship is simple but gets misapplied constantly:
Post-money = pre-money + new investment. New investor's ownership % = new investment ÷ post-money.
Worked example: a company raises $4m at a $16m pre-money valuation.
| Amount | |
|---|---|
| Pre-money valuation | $16m |
| New investment | $4m |
| Post-money valuation | $20m |
| New investor ownership | $4m ÷ $20m = 20% |
The term sheet's key clauses
A term sheet is a short, non-binding document laying out the proposed terms of a round. Non-binding in the legal sense, but in practice, walking away from agreed term sheet terms during diligence is rare and damages a fund's reputation with founders.
| Clause | What it covers | Covered in depth |
|---|---|---|
| Valuation & round size | Pre-money, new investment, resulting ownership | This lesson |
| Liquidation preference | Who gets paid first, and how much, in an exit | Lesson 18 |
| Pro-rata rights | Investor's right to maintain ownership % in future rounds | Lesson 18 |
| Board composition | How many seats each party gets, and who controls them | Lesson 19 |
| Option pool | Size of the ESOP top-up, and whose dilution absorbs it | Lesson 13 |
| Protective provisions | Decisions requiring investor consent (new debt, a sale, issuing senior shares) | Lesson 19 |
Founders and first-time operators often focus almost entirely on valuation, the number that sounds most impressive to repeat externally, while the liquidation preference and protective provisions clauses can matter just as much to actual economic outcomes. Lessons 18-19 unpack exactly why.
Checkpoint
- Pre-money: valuation before new money; post-money: pre-money plus new money.
- New investor ownership % = new investment ÷ post-money valuation.
- A term sheet is non-binding in theory, rarely walked back from in practice.
- Valuation is only one of several clauses that determine real economic outcome.
If anything here still feels unclear, ask before moving to Lesson 16.