What is Non-Dilutive Funding?
Non-Dilutive Funding is used to describe funding that does not force business owners to give up their shares or ownership in exchange for the money. For many entrepreneurs, the prospect of beginning a small firm or forming a fully-fledged corporation is a terrifying one. It is possible for businesses to get non-dilutive funding through a variety of different avenues.
Non-Dilutive Funding sources such as subsidies from the federal government or cooperation with the sector are usually overshadowed by venture capital-led fundraises. However, many significant ideas have been brought to market as a result of the efforts of these organisations.
Examples
Non-dilutive capital includes tax credit schemes, donor contributions, vouchers, grants, and competitions, to name a few examples. A non-dilutive funding source can be especially beneficial when a business is just getting off the ground. Companies of many sizes, and at varying stages of growth, make use of it, though the technology. The ability of a company to continue to build equity during its early stages of growth funding is critical to its success.
Equity or Debt: Which is better?
Raising capital for a firm is without a doubt one of the most arduous tasks that today’s entrepreneurs must face. They can receive money in a variety of ways, but each Founder must determine whether or not to give up equity in exchange for a debt that they are unable to pay back on time.
With either equity or debt, there are advantages and disadvantages to consider; with equity, you must part with a portion of your business in exchange for the money you receive; with debt, you are under a great deal of pressure to repay the money you borrow while also accruing interest on the principal you borrowed.
The Canadian business sector has had tremendous growth in growth capital over the previous five years, and the federal government of Canada has proposed significant investments as part of the Federal 2021 Budget, signalling that the Canadian investor base will continue to increase. As a result, raising capital for startups will be more challenging than it has been in the past.
Non-Dilutive Funding Has a Number of Advantages
Starting a business is really difficult. The ability to obtain traditional loans may be difficult to obtain due to a lack of understanding or a poor credit history. In contrast, the owner’s lack of industry ties may result in him or her being unable to secure acceptable finance from trustworthy sources. It’s possible that businesses will have difficulty collecting large sums of money with few constraints for a variety of reasons. Startups with Non-Dilutive Funding are particularly appealing because their founders retain complete control over the company. Business owners aren’t concerned with the vagaries of venture capitalists, angel investors, or other financiers.
The Importance of New Technologies
Founders should expect to spend between three and nine months securing the funding they require during this critical phase. Loan terms that are unfavourable to fledgling businesses are prevalent because lenders believe they will not be able to find a better deal elsewhere.
Subsidies to the industry from the government are intended to boost the commercialization of innovative technology. Before proceeding with their application, applicants must persuade the grantor that their product is viable on the market as described above. They place a high importance on the commercialization of scientific discoveries. GIGs provide assistance with expenditures associated with commercialization of research in addition to supporting the study.
What amount of assurance do you have that you will receive an SR&ED quarterly advanced refund?
The SR&ED quarterly bonus is guaranteed by the SR&ED payment, even if no personal guarantees are provided. A general security contract filed under the PPSA, as well as an Intercreditor Treaty with all other leveraged lenders, which prioritises the profits of SR&ED over the interests of other lenders. It is necessary to issue refunds. Holders of convertible debt are required to ensure the security of all assets. Grants from the government for scientific research are available.
As non-dilutive debt financing can be used to prolong an existing fundraising round, non-dilutive debt financing is particularly beneficial for biotech companies seeking non-dilutive finance. Your company will be able to show the viability of its business strategy in this manner before requesting additional investment. A follow-on investment is one that is made by an investor who has previously made an investment in the firm in question. Making a “follow-on investment” is the act of putting money into a company at a later time. There is, however, a risk associated with this. Financial leverage that is not dilutive requires the same level of due diligence as any other type of debt.
If my company already has debt of another kind, what should I do? What method is going to be used to pay off the debt?
Because the quarterly advance refunds service has no restrictions, it takes precedence over your other financial obligations. It operates in the same way as a revolving line of credit, with the principle and interest accruing and only being returned when the SR&ED return is deposited into your account.
Conclusion
To summarise, generating funds is a difficult undertaking that CEOs all around the world must undertake. In order to receive venture capital funding, the founders must relinquish some ownership and influence over the operations and direction of the company. It makes no difference if the company’s worth increases or decreases because it will put the CEO in a favourable financial position. Keep in mind that the answer is dependent on the type of business that is raising funds and the stage of development that the business is in at the time of the question.
It’s important for entrepreneurs who are wary of taking on debt at the pre-seed or seed stage to remember that any optimal capital stack will include both equity and debt, particularly if your company is involved in SR&ED-eligible research and development efforts.
