Investor offer with no collateral and a low pre-money: how to structure the deal

With no collateral and a low pre-money valuation, investors are persuaded by deal structure, not promised returns.

Money arrives in tranches tied to verifiable milestones, covenants limit risk, and the investor gets an exit preference and regular reporting.

The founder shows their own contribution. In Spain such a deal is structured as equity in an SL, a convertible loan or a participating loan.

An investor offer with no collateral and a low pre-money is not about a “beautiful deck” — it is a test of whether the risk is manageable.

Many early-stage rejections are caused not by the product but by the lack of a transparent deal structure.

The investor needs to see how money is split into tranches, which metrics confirm that risk is falling and which rights protect their capital.

The founder needs to understand what exactly gives the investor confidence.

Below is an offer builder: the principle, key terms, 7 building blocks, three typical configurations, a before-and-after example, how to structure it in Spain and a template.

The principle: trade “price of capital” for manageable risk

With no collateral and a pre-money below what the round needs, the investor has three questions:

• How will you limit their potential losses (downside)?
• How will you speed up hypothesis testing?
• How will they see risk falling as more money goes in?

The answer is structure, not “returns on paper”.

Structure means when and on what terms money arrives (tranches), how risks are limited (covenants and preferences), and how transparency and influence work (reporting and decisions).

Having no collateral is not a deal-breaker in itself.

Even ENISA, Spain’s public lender, lends to startups without collateral or guarantees — it assesses the project, the team and the founders’ own funds instead. More in Startup support programs in Spain.

Key terms

• Pre-money — the company’s valuation before the investment; the investor’s equity stake is calculated from it.
• Tranche — a part of the round paid once agreed results (milestones) are reached.
• Covenants — contractual restrictions and obligations that reduce risk, e.g. no new debt without investor consent.
• Liquidation preference 1× (non-participating) — on a sale or liquidation the investor first gets back their investment once, and the remainder is shared among members without further participation by the investor.
• Discount and cap (for a convertible loan) — a discount to the next round’s valuation and a ceiling on the valuation at which the loan converts into equity. Both protect the early investor.
• Reserved matters — decisions that require investor consent: issuing new shares, debt above X, selling the company.
• Convertible loan with a coupon — a loan with fixed interest until conversion; interest stops once it converts.

The offer framework: 7 blocks investors look for

Block 1. Instrument and parameter ranges

Choose one core instrument to suit the stage and the investor:

• Equity. A pre-money range and the stake on offer. Justify the valuation range with comparable deals and your financial model.
• Convertible loan. A discount and cap range, term, early conversion right. A commonly seen discount range is 10–25%; the cap is set by comparable deals.
• Revenue share or a coupon until conversion — if the investor needs cash flow before the milestones.

Show ranges, not a single point: it signals flexibility and saves back-and-forth. How each instrument works: How to structure startup investment in Spain.

Block 2. Tranches and milestones

You are not “inflating the return” — you are reducing risk as the money goes in.

• Split the round into 2–3 tranches.
• Tie each tranche to one or two verifiable milestones: a metric, a date, a document.
• Avoid vagueness: “successful launch” is bad; “MRR ≥ €60,000, churn ≤ 2% by month 7” is good.
• For hardware and regulated sectors, milestones are certification, product readiness (TRL), target unit cost and confirmed orders.

Block 3. Covenants

The expected minimum:

• Debt: no new borrowing above €X without investor consent.
• Dividends: no distributions until metric Y is reached.
• Transactions: consent for selling the company, large contracts and leases above €X.
• Reporting: monthly KPIs and financials, view-only dashboard access.

Rule of balance: 3–5 material covenants. Overloading with 8–12 slows the deal and lowers its chances.

Block 4. Preferences and rights

• Liquidation preference 1× non-participating — the standard “soft” preference.
• Pro-rata — the investor’s right to join the next round to keep their stake.
• Reserved matters — a short list of consent-only decisions.

Block 5. Transparency and oversight

• Reporting rhythm: monthly KPIs (MRR/ARR, churn, burn, funnel conversion); quarterly P&L and cash flow.
• Meetings: a monthly 30–45-minute KPI review.
• Data room: documents ready in advance against a checklist.

Block 6. Founder skin in the game

• What has already been put in: money, time, assets.
• Future contribution: “another €X by date Y” or deferring part of the founder’s pay until milestones are hit.

With a low valuation this is one of the strongest arguments. What investors count as founder commitment: Skin in the Game.

Block 7. Process and timeline

• Introduction → call → data room → Q&A → term sheet → due diligence → closing.
• Time targets: “term sheet by date X, closing by date Y”.

The link to returns. The investor’s internal rate of return (IRR) follows from structure and execution.

Tranches, oversight and metrics reduce risk, and the expected return then looks justified. Promises without structure undermine trust.

Investor control rights

• Board observer — access to information and discussions without a vote; suits early stages as “soft” oversight.
• Board seat — a vote and influence on strategy; more common for a lead investor or a large cheque.
• Veto list (reserved matters): issuing new shares (other than the agreed option pool), debt above €X, selling the company or material assets, change of control.
• Frequency and format: scheduled board meetings (e.g. quarterly), quorum, materials in advance.

Three typical configurations

The figures are illustrative — they show how a deal can be built, not a market standard.

In practice, what works best is fitting the structure precisely to the specific investor’s risk profile: instrument → tranches → covenants → rights.

A before-and-after example

Before: “We need €1.1m. No collateral. Valuation €8m. We’ll discuss the rest on a call.”

After (illustrative):

• Instrument: convertible loan, 15–20% discount or an €8–9m cap, 36-month term, early conversion at the next round.
• Tranches and milestones: €400,000 — 3 paid pilots by month 3; €400,000 — MRR ≥ €60,000 and churn ≤ 2% by month 7; €300,000 — MRR ≥ €100,000 by month 12.
• Covenants: no new debt above €100,000, no dividends, monthly reporting and dashboard access.
• Rights: 1× preference, pro-rata, reserved matters — share issues, debt above €100,000, sale of the company.
• Founder contribution: €220,000 already invested; another €50,000 within 60 days of the first tranche.
• Timeline: term sheet by 15 October, closing by 30 November.

What the investor gets on conversion. If the next round is priced at a €12m pre-money, the 20% discount gives a €9.6m valuation and the cap gives €8m.

The investor converts at the lower of the two — €8m. Their stake immediately after conversion, before the new round’s money and ignoring interest, is 1.1 ÷ (8 + 1.1) ≈ 12.1%.

If the round is priced at €9m, the discount gives €7.2m and conversion happens at that: 1.1 ÷ (7.2 + 1.1) ≈ 13.3%.

Why “after” works: the investor sees a manageable risk and a roadmap rather than a request to take it on faith. Even without collateral.

Test your own terms: the calculator shows the valuation at which the loan converts and the investor’s stake. The starting values are the example above.

How to structure the deal in Spain

• Equity in an SL. The investor comes in through a capital increase before a notary, registered with the Registro Mercantil. Preferences, vetoes, pro-rata, drag-along and tag-along are set out in the shareholders’ agreement (pacto de socios) and, where possible, the articles. The law allows shares with special rights, such as a preferred dividend.
• Convertible loan. An SL cannot issue bonds convertible into shares (art. 401 of the Capital Companies Act, LSC). Instead you use a loan agreement with a conversion right, and at the next round capital is increased by setting off the loan claim (art. 301 LSC). For an SL, no auditor’s certificate is required for this.
• Participating loan (préstamo participativo). Interest depends on the company’s performance, the loan ranks behind ordinary creditors, and it counts as equity for capital reduction and liquidation purposes (art. 20 of Royal Decree-Law 7/1996). ENISA uses this instrument. For a private investor it is a way to provide money without collateral and without entering the capital straight away.

Document pack

• Company form and governing law: articles, incorporation documents.
• Cap table and option plan.
• Key contracts: customers, contractors, leases.
• Intellectual property: rights, registration, assignment to the company.
• Financial statements — simplified is fine at early stages.
• Data protection and compliance policies, where relevant.
• Draft term sheet, deck, financial model, data room.

Reporting: what to show every month

• Revenue and subscriptions: MRR/ARR, month-on-month growth, churn.
• Unit economics: CAC, LTV, LTV/CAC, gross margin. How to calculate them: Startup unit economics.
• Sales funnel: leads → demos → deals, conversion by stage.
• Finance: a short P&L, cash flow, monthly burn.
• Milestones: tranche status, behind or ahead, corrective actions.
• Risks: the month’s top three risks and the plan to reduce them.

Format: one page of dashboard and one page of commentary.

Common mistakes

• “We’ll offer a high IRR and that will settle it.” Returns follow from structure and execution; they do not replace them.
• 8–12 covenants “just in case”. Keep 3–5 key ones; put the rest in reserved matters.
• Vague milestones (“launch”, “partnership”). Tie them to numbers, dates and documents: a contract, a certificate, an amount.
• Hiding weaknesses until due diligence. Name the risks and how you will reduce them — it builds trust.

Red flags for investors

• A participating preference above 1× at early stages without a strong reason.
• A cap well below a reasonable market range combined with tough covenants.
• No pro-rata while demanding stronger control.

These terms are easier to negotiate if you know your limits in advance — see Investor negotiations: how founders should prepare.

Offer template

All ranges and settings are guides, not promises.

The final structure depends on the stage, the quality of the project, the jurisdiction and the investor, and is fixed in a specific term sheet.

Frequently asked questions

How do you attract an investor without collateral?

Offer a structure that manages risk: money in tranches tied to verifiable milestones, 3–5 covenants, a 1× exit preference, regular reporting and the founder’s own contribution. No collateral is needed — even ENISA lends to startups without it.

What if your pre-money valuation is low?

Don’t haggle over valuation — reduce the investor’s risk instead: split the round into tranches, use a convertible loan with a cap and discount so the next round sets the final price, and show the founder’s contribution.

What are the cap and discount in a convertible loan?

The discount is a reduction on the next round’s valuation; the cap is a ceiling on the conversion valuation. The investor converts at the lower of the two, so they get equity more cheaply than new investors.

Can a Spanish SL use a convertible loan?

Yes, but not through bonds: an SL cannot issue them (art. 401 LSC). It uses a loan agreement with a conversion right, and at the round capital is increased by setting off the loan claim (art. 301 LSC).

How many covenants should an offer include?

3–5 material ones: a cap on new debt, no dividends until a metric is hit, consent for large transactions, reporting. Everything else goes on the list of decisions requiring investor consent.

Key points on an offer without collateral

• With a low valuation and no collateral, investors are persuaded by structure, not promised returns.
• Tranches tied to measurable milestones reduce risk as the money goes in.
• 3–5 covenants, a 1× non-participating preference, pro-rata and a short veto list are a sensible balance.
• A convertible loan with a cap and discount postpones the valuation debate to the next round.
• In Spain: equity in an SL, a loan agreement with conversion, or a participating loan.

Sources

• Capital Companies Act (Royal Legislative Decree 1/2010) — arts. 301, 401.
• Royal Decree-Law 7/1996 — art. 20, participating loans.