The simplest formula in venture capital — and the one founders most commonly misunderstand — is:

Pre-money valuation + Investment = Post-money valuation

That’s it. What makes it deceptively complex is how option pools, fully diluted share counts, and convertibles get embedded.

Worked example: clean priced round

• Pre-money: $20M
• Investment: $5M
• Post-money: $25M
• Investor ownership: $5M / $25M = 20%
• Founder ownership (if no existing investors): 80%

Worked example with option pool shuffle

Most VCs require a post-money option pool (commonly 10%) that comes out of pre-money.

• Pre-money stated: $20M
• Post-money option pool: 10% of $25M = $2.5M worth of options
• Effective founders’ pre-money: $20M − $2.5M (if pool is new) = $17.5M
• Investor: 20% / Option pool: 10% / Founders: 70%

Key insight: The option pool is dilutive to founders, not investors, unless you negotiate a pre-money pool (rare).

Worked example with a SAFE stack

Suppose before the priced round, the company has:

• $2M raised on a $10M post-money SAFE cap (investor gets 20% at conversion).
• Priced round: $5M on $25M post-money.

The SAFE converts at the lower of its cap or the round. Since the cap ($10M) is lower than $25M, the SAFE investor converts as if the company were worth $10M.

Post-conversion stack (approximate):

• SAFE investor: 20% (from SAFE’s fixed post-money mechanics).
• Series A investor: 20% (from $5M / $25M).
• Option pool: 10%.
• Founders: ~50%.

If the founders didn’t model this, they’d expect ~80% ownership and be shocked to see 50%.

Fully diluted vs outstanding shares

Fully diluted includes:

• Outstanding common and preferred shares.
• All unvested and unexercised options.
• Available option pool (unallocated).
• Warrants.
• Convertible securities (SAFEs, notes) assumed to convert.

Investors price deals on fully diluted, not outstanding. This matters because the more dilutive things exist, the lower the implied price per share.

How option pool is negotiated

1. Right-size the pool: Scope the next 18 months of hires and grants.
2. Don’t inflate: A bigger pool = more dilution for founders.
3. Pre-money option pool: Attempt to push at least part of the pool into post-money so it dilutes investors too. Rare but worth asking.

Practical takeaway

1. Founders: Before signing a term sheet, compute ownership at three exit valuations to see how preferences + dilution compound.
2. Investors: Be transparent about option pool sizing — inflating it is a known founder-hostility pattern.
3. Operators: Use Carta, Pulley, or a spreadsheet with clear formulas; never negotiate numbers from memory.

Further reading

• YC SAFE primer: https://www.ycombinator.com/documents
• NVCA model term sheet: https://nvca.org/model-legal-documents/