Non-dilutive finance is capital that you may obtain without having to forfeit any of your company’s equity. The venture capital (VC) investment model, in which you generally sell a piece of your stock to get operating cash, is the reverse of this startup funding. Companies can get start up investment based on other business considerations using non-dilutive funding. For startup founders and small-to-medium-sized business owners looking for startup funding in India that doesn’t force them to give up stock or control in their firm, non-dilutive capital is a solid alternative funding choice.
Many founders have the misconception that raising VC capital is their sole choice for funding (particularly for firms that provide software as a service, or SaaS). Let’s don our “Accounting 101” hats and go through the basics of a balance sheet first. On the left are the assets. On the right are liabilities and shareholder equity. Both sides must be on equal footing in order to create “balance”. Before moving on to the next step of this exercise—calculating ROE—check that first.
ROE = (Net Earnings / Shareholders’ Equity) x 100
You’ll need the net income from the income statement to calculate the return on equity (ROE). Multiply it by the balance sheet’s shareholder equity.
Why is this crucial to get funding for a startup?
The ROE for your current shareholders, including you, will decrease if you finance your business with equity. When using non-dilutive funding, that doesn’t happen. The ROE calculation is the first step in determining which choice is best for you.
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There may be no other option for businesses without access to regular financing channels but to go for VC (even if that means that they give up some ownership and control in their business and that VCs will have a say in company decisions). While non-dilutive capital may be immensely helpful at different phases of growth, especially early stages, there are ever more possibilities for you to explore like any startup funding website. This is especially true if you want to expand your business significantly in the future.
Pros of Revenue Based Financing:
- To obtain funding, you don’t have to give away a portion of your company.
- Without putting up personal property or demonstrating your creditworthiness, you can acquire cash.
- You can receive finance that is reasonable for you to repay based on your anticipated revenue by leveraging your existing or predicted revenue.
- You can get more lenient repayment conditions.
- Since the cost of selling stock might be fairly high in comparison to borrowing, your funding will be “cheaper”.
- Non-dilutive finance might act as a bridge to the next round because private enterprises are unable to borrow money to raise funds.
Based on their recurrent revenue, businesses with annual/monthly recurring revenue (ARR/MRR) may be attractive candidates for financing sources. This is a particularly suitable alternative for SaaS businesses with consistent subscription-based income that may struggle to secure capital from other non-dilutive funding sources simply because traditional sources have difficulty comprehending and approving SaaS business models. Similar to venture finance, ARR/MRR growth financing enables subscription-based businesses to optimize profits without giving up company ownership
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