Non-dilutive financing is any capital source that does not require equity in exchange for funds. Non-dilutive capital allows businesses to receive money without giving away any ownership of their company.
Equity or Dilutive financing is any kind of fundraising where the business or business owner gives up some percentage of ownership of the company. For example, selling shares to angel investors or venture capitalists.
Non-Dilutive Capital is an important part of a company’s capital stack. Companies should make use of as many non-dilutive dollars as possible, even if you plan on taking in dilutive investment. Non-dilutive capital will stretch the cash available to the company and extend runway to delay the next round of dilutive funding. This allows companies time to hit higher value milestones and achieve higher valuations.
There are several emerging types of capital sources considered non-dilutive. Here are just a few:
- Equipment Leases
- Revenue based Financing
- Loans without warrants
- Inventory Financing
Everyone should want to grow their business while giving away as little of it as possible and non-dilutive capital helps you do just that. Companies do not need to be cash flow positive to qualify. Most companies taking advantage of non-dilutive financing are burning cash.
Founders are increasingly funding their companies with non-dilutive capital to delay equity rounds. I co-founded Camber Road to help companies grow more efficiently. Now, Camber Road is quickly becoming the most popular form of financing for startups that need to buy things in order to grow their business. Camber Road’s burn efficient leasing solutions typically help companies extend their cash runway by 20% – 30%. Our fast, non-dilutive leasing model helps founders reach their next growth milestone, bring on critical new equipment, and achieve higher valuations as they grow their business.
Founders looking to finance growth in the most cost-effective way need to think about the true cost of capital associated with each funding option. If you want to run a capital efficient business, lease financing and other forms of non-dilutive capital are great solutions to consider. And your equity partners agree. They’re on the cap table with you. They want you to extend runway. The relationship between dilutive and non-dilutive funding sources has become increasingly interdependent. Most VC’s today have relationships with non-dilutive sources of funding they will introduce to their portfolio companies. Regardless, of how sharpened your projections may be, founders should always consider the value of extending their cash runway with non-dilutive sources.