Anyone who has taken the entrepreneurial plunge knows how tricky starting out can be. Building a new business can sometimes feel like a chicken and egg problem. You need to show growth to get funding, but you need funding to grow.
To fuel growth, founders must navigate a complex sea of funding options. Some of those options are considered non-dilutive funding.
Non-dilutive funding is defined as any capital that comes into a business without equity or ownership stakes. That is to say, the investor doesn’t own a part of the business. There are a few common forms of non-dilutive funding such as...
Non-dilutive funding is often associated with startups and companies in their earlier phases; however, any business size can rely on it at any stage of their growth.
Dilutive funding is any kind of fundraising where the founder or owner has to give up a fraction of ownership.
Many startup founders mistakenly think dilutive funding is the only way to go; they think they must sell shares to angel investors or venture capitalists in order to grow. Oftentimes this is because securing capital as a new business can be difficult.
When companies seek funding through traditional banks, they’re often met with high interest rates as banks are cautious of new business models, particularly SaaS or software solutions. It can be difficult for a bank to comprehend the growth potential and properly evaluate risk on unproven business models. For this reason, many companies turn to private investors for capital — and they sell ownership in exchange.