Non-dilutive funding: financing your startup without giving up equity

What is non-dilutive funding?

Funding is called non-dilutive when it does not involve issuing new shares: the founders keep their percentage of the equity, unlike a funding round, which causes founder dilution.

Non-dilutive does not mean free: a loan has to be repaid, a grant requires eligible expenses and supporting documents, a repayable advance must be paid back if the project succeeds, and a tax credit calls for rigorous documentation.

What are the main sources of non-dilutive funding?

In France, some innovative companies can also qualify for specific statuses that bring tax and social charge relief, such as the young innovative company status (jeune entreprise innovante, JEI), whose conditions should be checked with a chartered accountant.

• Young innovative company (JEI): defined by article 44 sexies-0 A of the French General Tax Code, it targets SMEs created less than 8 years ago, with fewer than 250 people and either turnover below €50 million or a balance sheet below €43 million, that meet research spending conditions.
• Research tax credit (crédit d’impôt recherche, CIR): set by article 244 quater B of the General Tax Code, it applies to eligible research spending.
• Bpifrance grants: for example the Bourse French Tech Émergence, aimed at very young deeptech startups.

For founders leaving a job, keeping certain unemployment benefits while setting up the company can also act as indirect funding in some countries, France included. Our guide to quitting your job to start a startup covers these questions.

How do you combine non-dilutive funding with a funding round?

Non-dilutive funding often works through leverage: an honour loan strengthens the equity the founders put in, which makes it easier to obtain a bank loan, and some public grants are more accessible when the company has already raised other resources.

• At the start, the founders’ contributions, honour loans and first grants fund validation and the first version of the product.
• A pre-seed round or a round with business angels can then build on this funding to go further.
• Investors generally appreciate it when part of the need is covered by non-dilutive funding, a sign that the project has already convinced other funders.

How do you put together a solid funding application?

1. 1Map the schemes available to you according to your stage, sector, region and how innovative the project is.
2. 2Check the eligibility criteria, the eligible expenses and the application deadlines with each body.
3. 3Prepare a consistent business plan and financial forecast, with a funding plan showing how the resources fit together.
4. 4Write a clear presentation of the project, what makes it innovative and the team.
5. 5Get in touch early with the account managers or networks, who can help steer the application.
6. 6Track expenses rigorously and keep the supporting documents required for payments.

• ✓The company’s articles of association and registration extract, or draft articles.
• ✓A presentation of the project and its progress.
• ✓Business plan, financial forecast and funding plan.
• ✓The founders’ CVs and how the team is organised.
• ✓Quotes or budgets for the planned expenses.
• ✓Market evidence: interviews, letters of intent, first customers.

Which pitfalls should you avoid?

• Building the project around a grant instead of looking for customers first.
• Underestimating how long applications take to be reviewed and paid, and running short of cash in the meantime.
• Committing expenses before the date from which they become eligible.
• Neglecting supporting documents, at the risk of having to repay part of the grant.
• Taking on personal debt without weighing the consequences if the project fails.
• Using intermediaries who promise guaranteed grants in exchange for a fee without being transparent.