Impact of non-dilutive funding on company valuation.
Is it considered best practice to account for significant non-dilutive grant monies in a markup valuation, e.g., in the range of $1.5M - $2.5M?
Non-dilutive funding, such as grants, does not directly affect equity or ownership percentages, but it can positively impact a company's valuation by improving its financial position and reducing the need for additional equity financing. However, it is not typically included in a markup valuation, which is often based on equity financing rounds. Non-dilutive funding can enhance a company's attractiveness to investors by extending its runway and supporting growth without diluting existing shareholders.
TL'DR - no, unless it's specified in your fund's valuation policy.
Markups are recorded based on your adopted valuation policy. Most VC valuation policies, including Decile Group's, work as follows:
SAFEs & Convertible Notes - Keep investments marked at cost
Priced Rounds - Realize a markup
Since most Decile Partners are pre-seed and seed, we have developed a cap-adjusted projection to help managers show LPs that the investments are in fact getting more valuable.
The issue with non-dilutive funding is that it doesn't come in the form of an investment and it does not set a new valuation when the funding is received by the company. As a result, the vast majority of valuation policies in VC, especially for early-stage funds, don't count inputs from such financings.
Markups are recorded based on your adopted valuation policy. Most VC valuation policies, including Decile Group's, work as follows:
SAFEs & Convertible Notes - Keep investments marked at cost
Priced Rounds - Realize a markup
Since most Decile Partners are pre-seed and seed, we have developed a cap-adjusted projection to help managers show LPs that the investments are in fact getting more valuable.
The issue with non-dilutive funding is that it doesn't come in the form of an investment and it does not set a new valuation when the funding is received by the company. As a result, the vast majority of valuation policies in VC, especially for early-stage funds, don't count inputs from such financings.