Module 3 · Chapter 7

Pricing the Round: Pre-Money, Post-Money and the Option Pool

The price of a new share follows from the company's valuation and the number of shares it is spread over. This chapter shows how to work it out, and who pays for the option pool.

≈ 12 min read 8-question test

In this chapter

  • How a valuation becomes a price per share
  • Why investors want the option pool counted before their money, and who pays for it
  • How to check a round's cap table before anyone signs

7.1Round pricing in one paragraph

In a priced round, investors buy new shares at one price per share. Nobody agrees that price directly. The parties agree a pre-money valuation (the company's value just before the new money arrives) and the number of shares it is spread over.

The price per share follows from those two figures. Add the new money to the pre-money valuation, and you have the value of the company after the round.

Key point

A valuation is not a price. Spread the same valuation over more shares and the price falls, although the headline figure has not changed. So turn every valuation into a price per share, and ask which share count it was spread over.

Also in this chapter

  1. Four numbers on a term sheet decide the price
  2. Post-money valuation and dilution
  3. What the pre-money share count contains
  4. A reserved pool share has no vote
  5. Who pays for a pool counted before the money
  6. How the size of the pool was negotiated
  7. Completion and the cap table
  8. Your job

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