MFN’s Non-Dilutive Funding Guide

Non-dilutive funding is capital that a company receives without the requirement to give up ownership stakes in return. It takes many forms, including grants, crowdfunding, tax credits, and challenge competitions.

This differentiates it from dilutive funding, where capital is gained in exchange for shares of the company. In other words, non-dilutive funding does not dilute the existing shareholders’ percentage of ownership, voting rights, or earnings per share.

The benefit of non-dilutive funding is that it allows entrepreneurs to raise capital without losing control over their company. Funding strategies will usually employ a mix of dilutive and non-dilutive funding; remember to fully evaluate all funding options before making a decision.

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Types of Non-Dilutive Funding

Grants

These are funds given by governmental bodies, foundations, or corporations to companies, usually to advance a specific goal. They don’t need to be paid back and don’t take equity.

Crowdfunding

Crowdfunding campaigns on platforms like Kickstarter or Indiegogo allow companies to raise small amounts of money from a large number of people, often in exchange for early access to products, discounts, or other perks.

Product Presales

Companies can also generate non-dilutive funding by pre-selling their product. This involves customers paying upfront for a product that will be delivered in the future.

Debt Financing

This involves borrowing money that must be paid back with interest. Banks, credit unions, and online lenders may all offer various forms of debt financing.

Leasing or Equipment Financing

Instead of purchasing equipment outright (which can be capital-intensive), companies can lease equipment or apply for equipment financing to spread the cost over time.

Competitions and Prizes

Some organizations run competitions where companies can win cash prizes for their business ideas or for achieving certain milestones.

Tax Credits

Certain activities, such as R&D, can qualify companies for tax credits. These reduce the amount of tax a company owes and can sometimes even lead to cash refunds, effectively providing a source of funding.

Strategic Partnerships

Some companies enter into strategic partnerships where a partner provides resources such as capital, distribution, or marketing in exchange for something other than equity (like exclusive rights to sell the product in a certain area).

Non-Dilutive Funding Resources for Massachusetts Startup Founders

State Challenges and Competitions

Massachusetts’ entrepreneur ecosystem is vast, and there are lots of regional opportunities to pitch your company for cash awards, research grants, etc. Check out our ESO directory and events page to see upcoming challenges and connect with state entities that offer founder support.

Some examples of organizations that produce challenges with awards:

Massachusetts is home to a variety of cutting-edge research and development facilities, or “sandboxes.” These organizations provide a wide range of services supporting the life cycle of validation and testing for digital health companies.

Launched in 2019, the Sandbox Program is administered by the Massachusetts eHealth Institute at the MassTech Collaborative and designed to both support digital health companies in their product development and expand the user base for sandbox environments.

MassVentures invests in deep tech companies at the early stages. It provides venture capital, grants, and business advice to founders who often lack access to this support. They establish long-term relationships with founders, aiding them on their journey from startup to growth company. MassVentures’ investment and grant companies have leveraged over $3 billion in follow-on capital in the last 5 years and employ approximately 10,000 workers in Massachusetts.

MassVentures has many different funding and acceleration programs for different types of companies.

General Non-Dilutive Funding Resources

Gust is a global SaaS platform for founding, operating, and investing in scalable, high-growth companies. Gust’s online tools help entrepreneurs start, run, and fundraise for companies and provide deal flow and relationship management for investors. Here’s an interesting overview of why you should consider using Gust as a startup founder.

The Small Business Innovation Research (SBIR) program is a highly competitive United States Government program, intended to encourage domestic small businesses to engage in Federal Research/Research and Development (R/R&D) with the potential for commercialization. SBIR enables small businesses to explore technological potential and provides the incentive to profit from its commercialization.
The SBA offers several loan programs designed to meet key financing needs for startups and small businesses. These include 7(a) loans for general business expenses, 504 loans for property and equipment, and microloans for smaller funding needs.

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About MFN

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MFN is produced by Lever, a startup accelerator based in North Adams. Our work is supported by funding from and collaboration with the Massachusetts Technology Collaborative, based in Westborough.

 

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