There are many challenges and hurdles to overcome when setting up a business, but every entrepreneur knows that one of the greatest challenges is finding funding. Unless you have extensive savings, a wealthy family, or a healthy pipeline of contracts to help you the first months and years can be very difficult.
Selling a share of your business, or a portion of the equity in your business is an option. However, through non-dilutive financing, it is possible to access the funding that you need, without having to give up any control of your venture.
On this page
What Is Non-Dilutive Financing?
Non-dilutive financing, which may also be referred to as non-intrusive capital, is capital that is received by you to help establish or grow your business and does not require you to give up any share of your business.
While investment angels, and investment companies, will require some equity in your business, non-dilutive capital, such as funding raised through government grants or via mezzanine loans, does not have the same requirements. Such capital is not “free”, however, and as well as interest on loans, some grants may come with certain restrictions and organizational requirements.
Grants And Other Funding Options
A mezzanine loan is similar to a secured loan, and if you do not meet the repayments and interest payments that are agreed upon, then the mezzanine note dictates that you will have to give up a portion of your business equity. If your business has guaranteed income, outstanding invoices, or ongoing contracts, then a mezzanine loan can prove both safe and beneficial.
Government and enterprise grants are offered by different government agencies and organizations, typically to startup and developing businesses. It can take a lot of time and effort to apply for these grants, and they may have certain stipulations that must be met, but the money does not usually need to be repaid. If the capital does need to be repaid in the future, then there will not normally be interest charges.
It may also be possible to agree to an industry partnership with a larger company, operating in the same or a similar field. This can be especially useful if you have developed bespoke technology because it can attract a large payment from a larger organization in exchange for use of the technology or an agreement to co-develop.
Funding Sources
Unfortunately, these sources of funding are rarely advertised, and few organizations that offer them do the leg work to find entrepreneurs and startups. If this is your first time establishing a business, then it will take considerable research and effort to find suitable funding.
The best place to start is the government grant website, and you can also check with your local government pages because these typically link to small business bureaus and organizations. Specialist lenders, offering mezzanine loans and other forms of mezzanine credit can be found online, while certain groups like the Prince’s Trust also have a strong online presence and offer funding to young entrepreneurs.
Look at industry organizations, search the Internet, and visit websites belonging to large organizations within your industry, to find other possible sources of funding. Alternatively, you can sell assets such as business assets that you don’t need, or even property, to raise the capital. Read about renting or selling your property to raise capital with the latest article at Geering & Colyer.
Retain Control Of Your Business And Your Vision
The biggest benefit of non-dilutive financing is that it enables shareholders to retain total control over their business. You don’t have to lose sight of your goals, or alter your vision, in order to secure the financing that is required. Venture capitalists may want more than a share of the company, and they may want to have a say in the general daily running of the business. Through non-dilutive financing, this isn’t a problem.
Retain Value For Later Stage Dilutive Funding
Retaining a greater share of your business is financially beneficial to you, but it also means that you will be able to raise further capital during later-stage funding. Some venture capitalists will lose interest in investing if they discover that a share of their business is already owned by another external party.
At the very least, it effectively devalues the business, because you have less of a share to give to future investors. By retaining control, and by retaining the equity in your business, you can raise more money when you have exhausted grants and mezzanine funding options.
Expand Your Business Without Losing Control
The primary reason that most entrepreneurs go into business is to make money through their vision, by developing and expanding their business. Non-dilutive financing enables the entrepreneur to retain control, expand their business, and do so without relinquishing ownership.
Jude Godfrey works in a funding team that aims to support start-ups. You can find Jude’s thoughts on a number of different websites including B2B and finance portals.
Image source: BigStock
