If you are in the fortunate position of being a young startup and have decided to bootstrap your business without outside capital, then you probably want to know how to make your cash last as long as possible.
Although there is no one-size-fits-all approach to running a company that doesn’t take external investment, the good news is that there are other avenues for funding besides venture capital. Like grants, micro-lending funds, and government subsidies which are however the examples of non-dilutive funding sources.
The trick is knowing how to tap into these resources without compromising your business plan or ideas. So let’s walk you through this perplexing predicament!
Non-Dilutive Funding: A Valuable Tool for Startups!
In the startup world, it’s not uncommon for founders to pinch pennies and do without outside funding. However, there are times when non-dilutive or “angel” funding can be a huge boon to startups. Now you might be wondering that what is non-dilutive funding? The answer is simple!
Non-dilutive funding is a valuable tool for startups that can help them develop without the need to give up equity in their company. This method of financing enables businesses to grow, but it also allows for a more diverse range of people and companies to start innovating at an early stage.
Why does non-dilutive funding matter?
Non-dilutive funding matters because it is an investment that is not made using company’s operating cash flow. These include investments from banks, venture capitalists, angel investors and even government grants. Non-dilutive funding activities are not counted as part of the company’s core operations and therefore do not affect the company’s bottom line or net income.
For example, if you were to get an investment from venture capital investors, they would get a percentage of your company and that’s why it’s called dilutive financing. Whereas, in non-dilutive funding you won’t be losing an inch from your company’s share.
How do you Get your Hands on Non-Dilutive Funds?
As we’ve mentioned above non-dilutive funding is funding in which the investor receives nothing in return other than the potential for the increased value of their investment. And it is often used by startups to grow their company without giving up any equity or taking on debt.
Some companies will offer an initial seed round, with the investors receiving shares of common stock in the company. These shares are entitled to dividends and voting rights, but cannot be redeemed by the holder for cash.
Non-dilutive financing can also come from friends and family members, where they give you money to start up your business with no expectation of making it back. This may take place through a gift or through an agreement where you promise not to repay them until your business starts generating revenue.
Over and above that you can get your hands on non-dilutive funding by either applying for grants or self-funding your company. One of the most common sources is government grants. Even though these are not always easy to apply for, they are worth the effort if you qualify.
Self-funding is another option, even though it comes with more risk. You need to put in money that is not repaid back and you cannot refund it in case of failure.
How do you get a Grant?
We have all been told that the best things in life are free, and this is still the case when it comes to grants. You can get a grant to fund your project by applying for a grant from a government organization. There is no catch, you don’t need to pay it back and you don’t have to give them any of your assets.
A grant is a money given to you for free. It’s usually awarded by an agency or government entity and not in exchange for repayment. The most important thing you should know about grants is that it is not the same thing as a loan. This means that you will not have to pay it back. However, it also means that if you don’t use the money for the intended purpose, then you can lose it.
How to get Self-funding?
The best way for many entrepreneurs to do self-funding without diluting their shares- either by using existing savings or by getting loans from family members and friends.
Benefits of Non-Dilutive Funding
Non-dilutive funding is a form of financing that does not involve giving away any of the company’s equity and instead provides money to the company.
Non-dilutive funding is more favorable for entrepreneurs because it does not involve giving up any part of their business or taking on debt or risk for those who are already struggling with those things.
Essentially, all non-dilutive funding is an investment in the company with no equity involved. This means that if you receive a grant for $50,000 to start your own company but you have an idea that might have failed with only your money invested – then it’s worth looking into non-dilutive funding to see if it can work for you!
The Pitfalls and Costs of having Non-Dilutive Funding
Non-dilutive funding is often seen as a solution for many businesses. They are seen as an alternative to traditional financing because it does not use up the company’s assets. However, there are some pitfalls that every company should be aware of before opting for this type of funding.
A common pitfall is that non-dilutive funding usually comes in the form of equity investments in your business which may impact the future liquidity of your business or give away control to outside investors.
Furthermore, non-dilutive funding may come with higher costs when compared with traditional financing methods since it usually carries interest rates when provided by private investors.
One of the major downsides to non-dilutive funding is that it must be paid back before the company can receive any more funding, which may cause capital constraints for future growth. Non-dilutive funds are also scarce and difficult to obtain, making them hard to secure for many companies.
If your startup is looking for a way to accelerate growth, non-dilutive funding may be a viable option. In this article, we’ve outlined some of the benefits and drawbacks of non-dilutive funding as well as some common questions entrepreneurs have about using it.