Use when considering alternatives to equity or planning liquidity: non-dilutive and debt financing including venture debt, revenue-based financing and grants, what diligence actually examines and how to prepare for it, valuation of private companies and why the headline number is a negotiated artefact, and secondaries and exits including acquisition structures and their consequences for different share classes.
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---
name: fundraising-diligence-valuation-and-exits
description: "Use when considering alternatives to equity or planning liquidity: non-dilutive and debt financing including venture debt, revenue-based financing and grants, what diligence actually examines and how to prepare for it, valuation of private companies and why the headline number is a negotiated artefact, and secondaries and exits including acquisition structures and their consequences for different share classes."
---
# Fundraising Fundamentals: Non-Dilutive and Debt, Diligence, Valuation, and Secondaries and Exits
> **Part 3 of 6** of the *Fundraising Fundamentals* reference (plugin `fundraising-fundamentals`), covering §10–§13. Sibling skills: `fundraising-what-it-is-narrative-and-process` (§0–§4), `fundraising-instruments-dilution-terms-and-control` (§5–§9), `fundraising-public-markets-and-securities-regulation` (§14–§19), `fundraising-non-profit-donors-grants-and-metrics` (§20–§25), `fundraising-reference` (§26–§32). Section numbers are shared across the set; a reference written as §N → `skill` points into that sibling skill.
>
> **Currency:** Instruments, dilution mathematics and securities structure are stable. Two areas moved. See §26 → `fundraising-reference` for the concentration of the private venture market and the US charitable deduction rewrite effective January 2026.
> **⚠️ Scope.** Complements a business reference (§4 financing overview, §12 negotiation)
> and an economics/accounting/tax reference (statements, entity structure, tax).
> **This is the deep version**, and it covers three worlds most treatments handle
> separately.
>
> ⚠️ **Not legal, tax or investment advice.** **Securities law is unforgiving and
> jurisdiction-specific — §19 → `fundraising-public-markets-and-securities-regulation` exists to tell you which questions to take to a lawyer.**
>
> **The three ideas that organize all of it:**
> 1. **⚠️ All fundraising sells the same thing: a claim on future value, in exchange for
> capital now.** **Equity sells ownership, debt sells a promise, philanthropy sells
> *participation in an outcome*.** ⚠️ **The instruments differ enormously; the
> persuasion structure barely differs at all** (§2 → `fundraising-what-it-is-narrative-and-process`, §3 → `fundraising-what-it-is-narrative-and-process`).
> 2. **⚠️ Fundraising is a sales process with a long cycle, and treating it as anything
> else is the most common failure.** **Pipeline, qualification, and the fact that most
> "no"s are actually "not now" or "not me"** (§4 → `fundraising-what-it-is-narrative-and-process`).
> 3. **⚠️ The terms matter more than the amount, in every one of the three worlds.**
> **Liquidation preference in private, covenants in public, restriction in
> philanthropy.** ⚠️ **Money with the wrong strings attached has sunk more
> organizations than insufficient money.**
---
## §10. Non-Dilutive and Debt
```
VENTURE DEBT ⚠️ alongside/after equity. Cheaper than equity, and it comes with
COVENANTS and often warrants. ⚠️ Dangerous if growth stalls
REVENUE-BASED repay a % of revenue until a cap. ⚠️ Expensive, flexible, no dilution
BANK / SBA ⚠️ needs collateral or history. Usually unavailable to early startups
INVOICE / AR finance receivables — working capital, not growth capital
GRANTS ⚠️ R&D credits, innovation grants. Slow, restricted, genuinely free
CUSTOMER FUNDING ⚠️ prepayments, deposits, design partnerships. THE most underrated
source, and the only one that also validates demand
```
**⚠️ Debt covenants are the thing to read.** **A minimum-cash or revenue covenant breached
during a bad quarter can trigger acceleration precisely when you can least afford it** —
⚠️ **debt is cheapest when you don't need it and lethal when you do.**
---
## §11. Diligence
**⚠️ What they actually check** (see a business reference §15 for why these fail):
```
CORPORATE ⚠️ cap table accuracy, share issuances, board minutes, incorporation
IP ⚠️ assignments from EVERY founder, employee and contractor.
THE most common deal-delaying problem
CONTRACTS customer terms, change-of-control clauses, unusual commitments
FINANCIAL ⚠️ revenue recognition, quality of earnings, cohort retention
EMPLOYMENT ⚠️ classification, offer letters, equity documentation
LEGAL disputes, threatened claims
TECH architecture, security, ⚠️ open-source licence compliance
CUSTOMERS ⚠️ reference calls. They will find your unhappy customer
```
**⚠️ Prepare the data room before you start raising, not when asked.** ⚠️ **Diligence
delays kill more deals than diligence findings** — **momentum is the asset, and a
three-week scramble for missing IP assignments is where enthusiasm dies.**
**⚠️ Disclose problems early.** **A known issue is a negotiation; a discovered issue is a
trust problem, and the second one reprices or ends the deal.**
---
## §12. Valuation of Private Companies
```
COMPARABLES ⚠️ revenue or EBITDA multiples of similar recent transactions.
The dominant method in practice
DCF ⚠️ theoretically correct, practically useless pre-revenue —
the assumptions dominate the answer
VC METHOD ⚠️ work BACKWARD from a target exit and required return
SCORECARD/BERKUS pre-revenue heuristics. ⚠️ Structured guessing, honestly labelled
```
> **⚠️ GOTCHA — early-stage valuation is not really a valuation.** ⚠️ **It's the output of
> two other numbers: how much you're raising, and what percentage the lead needs to own.**
> **A lead targeting 20% who's writing $4M produces a $20M post-money, and the
> "valuation" is arithmetic, not analysis.**
> **⚠️ Which means the way to move it is competition, not argument** — **a second
> interested party changes the number; a better spreadsheet does not.**
---
## §13. Secondaries and Exits
**⚠️ Investors need liquidity, and this shapes their behaviour toward you throughout.**
```
ACQUISITION ⚠️ the most common meaningful outcome by a wide margin
IPO §14. Rare, and it's a financing event, not an exit for insiders
SECONDARY ⚠️ selling existing shares to a new buyer. Increasingly common
as private companies stay private longer
ACQUIHIRE talent purchase. ⚠️ Usually poor for investors and common shareholders
WIND-DOWN the most common outcome overall
```
**⚠️ Founder secondaries** — **selling some of your own shares in a round** — **are more
accepted than they once were, and there's a legitimate tension**: ⚠️ **investors want you
hungry, and a founder with no financial cushion makes risk-averse decisions.** **Small
partial liquidity at Series B/C is now reasonably common.**
---
# PART III — PUBLIC
