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Dilutive or non-dilutive? Two funding channels

In this article, you will distinguish the difference between the 2 main types of financing: non-dilutive financing and dilutive financing.

  • Non-dilutive financing includes public aid, competitions, loans, subsidies, crowdlending, donation crowdfunding, etc …
  • Dilutive financing includes crowd equity, private equity (seed capital, venture capital, development capital), corporate venture, business angels.

Often, non-dilutive financing occurs during the creation phase. Whereas, dilutive financing occurs in the seed and take-off phase.

The difference between these 2 types of financing

The dilutive financing will open up your capital to new investors. Non-dilutive financing will simply feed your cash flow, that is to say, your cash (bank account).

It is important to understand the difference between the two. In the case of dilutive financing, you must first accept the idea of ​​incorporating new shareholders into your capital. As a result, you lose ownership percentages of your start-up.

Now that you know all that, we are going to give you a more in-depth view of these 2 categories.

Non-dilutive financing

There are many non-dilutive financing solutions. You can find there:

  • Tax advantages that allow you to save taxes.
  • Grants that allow you to obtain funding under certain restrictive conditions.
  • Credit advances.
  • Loans such as the 0% repayable honor loan.
  • Donation, loan, or royalty crowdfunding: Donation crowdfunding consists of making a donation to a startup. No consideration is given. Counterpart crowdfunding consists of making a donation to a startup in exchange for a counterpart (generally goodies). Crowdlending is about lending from savers rather than from banks.

Dilutive financing

There are also many solutions in this category. You can find there:

  • Crowdfunding or crowd equity involves crowdfunding with equity participation. Here, entrepreneurs appeal to the mobilization of citizens’ savings.
  • Business angels. They often invest in the seed stage for an average investment ticket of $ 20,000 for a business angel and $ 100,000 to $ 500,000 for a business angel club.
  • Private equity funds: Seed capital: stage of creation and the first sign of market traction; Venture capital: recurring turnover – a signal of increasingly strong market traction; Development capital: growth phase of the startup: deployment in a larger market and internationalization.
  • Corporate ventures, created by large companies that use their available funds to invest in startups in the same industry.

Non-dilutive financing is often associated with the creation of the startup. Indeed, during the creation phase, entrepreneurs seek funding like the ones provided by Mars Capital to finance research and development in order to develop prototypes. Therefore, it is for creation that many startups turn to contests, honorary loans, grants, incubators, or even love money.

Another way to estimate market demand is to do a crowdfunding campaign with a donation counterpart. Bank loans also fall into the category of non-dilutive financing. One strategy many entrepreneurs use is to raise as much public non-dilutive money as possible and use it as a down payment to secure a bank loan of the same amount.