Separate company value from the funding amount
Identify whether a proposed value is stated before or after the new investment. Pre-money and post-money descriptions can help explain a simple issue, but actual terms may include options, convertible instruments or different classes. Read the full capitalisation assumptions.
Money paid into the company is different from money paid to an existing shareholder. A funding round can contain both. Keep primary investment and secondary share sales separate so that the ownership and cash effects are not confused.
Work through a simple share issue
In an original hypothetical example, a company has 100,000 identical ordinary shares and a £1 million pre-money equity value. A £250,000 new investment at £10 per share issues 25,000 new shares. The simplified post-money value is £1.25 million with 125,000 shares.
A shareholder retaining 20,000 shares moves from 20% ownership to 16%. At the illustrative £10 issue price, that holding still corresponds to £200,000 arithmetically. This does not establish its independent value or saleability; the example assumes identical rights and omits fees and other instruments.
Investigate rights before comparing prices
New investors may receive different distribution rights, preferences, conversion rights or protections. A price for that package is not automatically the value of an ordinary share held by someone else. Obtain appropriate legal interpretation of the actual terms.
The headline post-money figure may therefore be a useful description of the round but an incomplete measure for another purpose. A share valuation should identify the class and rights being valued, rather than applying a single issue price indiscriminately.
Include options and convertible instruments explicitly
A capitalisation table should state whether options and other potential shares are included and on what assumptions. Fully diluted can mean different things in commercial discussion, so ask for the calculation. Timing and exercise or conversion conditions matter.
If an employee option pool is created before the investment, the effect on existing holders can differ from a pool created afterwards. Model the actual proposal and keep the legal documentation aligned. Do not present a simplified percentage as a definitive outcome before the terms are settled.
Keep value separate from an exit route
An arithmetic holding value does not mean a shareholder can sell at that price today. Transfer restrictions, consent, buyer availability and the transaction purpose may affect the assessment. The company’s new cash is also intended for its operations and is not automatically distributable.
A future sale depends on trading and terms at that time. Avoid treating the post-money figure as guaranteed proceeds for every holder. Any personal tax or legal implications need advice for the individual circumstances.
Reconcile percentages to a dated capitalisation table
Ask for a share-count reconciliation before and after the proposed issue, showing every class and potential instrument separately. Use the same table across the model, term summary and adviser discussion. A percentage without that denominator is hard to interpret, particularly where some options are assumed to exist and others are excluded.
| Area | Evidence to examine | Question to resolve |
|---|---|---|
| Existing capital | Issued shares by class and holder | Does the opening percentage use the correct denominator? |
| New issue | New shares, price and recipient of cash | Is this company investment or an existing holder’s sale? |
| Potential shares | Options and conversion assumptions | What is included in the stated diluted percentage? |
Prepare the right question for an adviser
Bring the current and proposed share tables, term summary and purpose of the valuation after agreeing confidentiality. Explain whether you need to understand dilution, negotiate an issue, value a holding or plan a transfer; these are related but different assignments.
Consult EFC can discuss private-company share valuation and financial interpretation within an agreed scope. Start with a non-confidential outline of the proposal. A model can clarify mechanics, but cannot certify legal rights or guarantee investor or authority acceptance.
Your preparation checklist
- Separate pre-money value, investment and post-money value.
- Reconcile the old and new share counts.
- Check class rights, options and conversion assumptions.
- Keep arithmetic value separate from sale proceeds.
Frequently asked questions
Does dilution always reduce the pound value of my holding?
No. In a simple same-price issue, the percentage falls while new cash enters the company. Actual value depends on terms, rights and the business.
Can I use the latest investment price for all shares?
Not automatically. Different classes and investor protections can make the economic interests different.
Is post-money value what shareholders receive on sale?
No. A future sale has its own value, terms, costs and distribution rights. A funding-round description does not guarantee proceeds.
Sources and scope
This is general preparation guidance. Worked examples are original hypothetical illustrations, not client outcomes, market multiples or individual advice. Agree the purpose, evidence and scope before commissioning professional work.
Professional background: ICAEW business and share valuation resources and IVSC standards overview. These links provide context and do not imply endorsement, assurance or compliance for an individual engagement.
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