A founder tells you the round is "at four". Four what, exactly? Four pre-money and four post-money are two different deals, and the gap between them is a chunk of your eventual ownership. Get the two words straight and a lot of seed-round arithmetic stops being intimidating.
Here's the whole thing in one line. Pre-money is the agreed value of the company before the new investment lands. Post-money is that same company once the new cash is sitting in its bank account - pre-money plus the amount raised. Post-money is therefore always the bigger number, by exactly the size of the round.
What's the actual maths?
Take a company raising £1 million. The founders and the lead investor agree a pre-money valuation of £4 million.
- Pre-money: £4 million.
- Money raised: £1 million.
- Post-money: £4m + £1m = £5 million.
Now the only sum that matters to you as an investor. Your ownership is the amount you put in divided by the post-money valuation. Write a £100,000 cheque into that round and you own:
£100,000 ÷ £5,000,000 = 2 per cent.
Divide by pre-money instead and you'd get 2.5 per cent - and you'd be wrong. The new money is part of what the company is worth the instant the round closes, so it belongs in the denominator. This is the single most common slip first-time angels make, and it always flatters the stake.
Why does one word swing your stake?
Because the same round size produces different ownership depending on which valuation is fixed. Say everyone agrees the round is £1 million and the number on the table is £4 million. If that £4 million is the pre-money, post-money is £5 million and the new investors collectively buy 20 per cent (£1m ÷ £5m). If the £4 million is instead the post-money, the pre-money is only £3 million and those same investors buy 25 per cent (£1m ÷ £4m).
Five points of the company, decided by a single adjective. That is why the term sheet should never just say "valuation". It should say which one. When a founder is vague, assume the version that's better for them and ask the question early.
How does this become a share price?
Valuations get agreed in millions, but shares get issued at a price per share, and that's where the post-money figure does its real work. The price the new investor pays is the pre-money valuation divided by the number of shares already in issue. Multiply that price by the new money and you get the count of fresh shares created.
You don't need to run the spreadsheet to invest sensibly, but you do need the instinct: every new share issued in a round slices the pie thinner for everyone who held shares before it. That slicing is dilution - the reduction in your ownership percentage when new shares are created - and it's the price of letting a company raise more capital to grow.
Where does the option pool hide?
Here's the move that catches people out. Investors almost always want an employee option pool - shares set aside to hire and reward staff - created or topped up before their money goes in. In valuation terms, the pool sits inside the pre-money. The effect is quiet but real: the founders absorb the dilution from the pool, not the incoming investors.
So a "£4 million pre-money" headline can shrink the founders' slice more than they expected, because a 10 or 15 per cent pool has been carved out of that pre-money before anyone's stake is calculated. It's one of the most negotiated lines in a seed term sheet, and a point worth grasping from both sides of the table.
Does SEIS or EIS change any of this?
No - and this trips up plenty of UK angels, so let's be precise. The Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS) are tax reliefs on the money you invest in qualifying early-stage companies. They don't feed into the valuation, and they don't change your ownership percentage. Your stake is still your cheque divided by the post-money valuation, full stop.
What the reliefs change is your cost and your downside. SEIS offers 50 per cent income tax relief on up to £200,000 invested per tax year; EIS offers 30 per cent on up to £1,000,000 a year (or up to £2,000,000 where at least £1,000,000 goes into knowledge-intensive companies). Both carry a minimum holding period of three years, loss relief if the company fails, and a capital gains exemption on the shares if you've held them for at least three years and received income tax relief. The reliefs can be carried back to the previous tax year. None of that alters the price of the shares - it alters what those shares net cost you after tax.
On the company side, the schemes carry their own eligibility limits, and several were revised from 6 April 2026. EIS, for example, now requires gross assets of no more than £30 million before the share issue, caps the company at fewer than 250 full-time-equivalent employees, and limits the raise to within seven years of the first commercial sale, among other rules. Those thresholds change periodically, so check the current figures against HMRC's guidance before relying on them: gov.uk on applying for EIS. The point for valuation maths, though, stays simple: reliefs sit on top of the deal, not inside it.
What should you check before you wire?
Three quick ones, and they take a founder ten seconds to answer. Is the headline number pre- or post-money? What's the full round size? And is there an option pool baked into the pre-money, or does it land afterwards? With those three, you can do the ownership sum yourself - on the back of an envelope, before any lawyer is involved.
A reminder, because it's the law and it's good sense: this is general information, not financial or investment advice. Whether any of this is right for you depends on your circumstances, and you should seek advice from an FCA-regulated adviser before making an investment decision.