Is Non-Dilutive Funding the Best Choice for Your Growth Plans?

If your growth-stage company is actively preparing to seek capital, there will be plenty of decisions to make as you settle on a path forward. One of the most important decisions concerns the types of funding you pursue. As you work to scale quickly and meet market demand, you might also want to avoid giving up more of the business than necessary.

This makes it well worth considering the full spectrum of funding options available, including both non-dilutive funding opportunities that don’t require you to sacrifice ownership. As a resource, non-dilutive funding is now increasingly being recognized for its effectiveness for teams looking to accelerate growth without giving up equity.

While it’s not a priority for everyone, many founders are right to be cautious about equity dilution. Research shows an average of about 28% founder dilution from Seed round to Series A. From Series A to Series B, it’s about 11%. By Series B, founders typically own less than 30% of the company, and investors own more than 55%. These numbers make it clear: If you’re looking to keep more of your company as you scale, you’ll need to evaluate alternatives to equity-based financing.

Here, we’ll spotlight the growth phase and help founders and finance leaders think carefully about when non-dilutive funding makes the most sense—and when it doesn’t.

Non-dilutive funding refers to sources of capital that don’t require founders or existing shareholders to give up ownership in exchange for financing. Examples of non-dilutive funding include:

In contrast to equity financing, where investors receive ownership stakes (and directional control, in some cases) in exchange for capital, non-dilutive funding allows companies to retain control while still accessing the funds they need to expand operations and scale the company. This type of financing is attractive for growth-stage companies with strong performance metrics, clear market demand, or tangible assets, particularly if the leadership team doesn’t want to further dilute their cap table.

Non-dilutive capital sources still come with their own strings attached. Often, these look like repayment terms or capital allocation restrictions. The advantage is that they can help balance your team’s funding approach and provide faster access to capital when you need to execute on strategic growth plans, all without giving up a slice of the company in the process.

For many founders, the most obvious reason to consider non-dilutive funding is for ownership retention. And during a stage when your company’s value is on the rise, giving up equity could actually cost more in the long term than a structured debt or financing deal.

Additional benefits can include:

Let’s take a look at the major types of non-dilutive funding and see when they’re each most useful:

This is structured as a loan, and it’s typically provided alongside or just after an equity round. It’s usually the best fit for companies with a clear growth trajectory, stable revenue, or tangible enterprise value.

In this arrangement, companies repay capital as a percentage of monthly revenue. This structure is attractive to SaaS and subscription-based companies with more predictable cash flow.

While typically more limited in scope, government grants or industry innovation programs can provide early funding, especially for biotech, cleantech, or IP-heavy sectors.

For companies with valuable IP, physical assets, or recurring revenue streams, lenders may offer financing backed by those assets.

Non-dilutive funding might not always be the right financing solution for your team. It’s important to weigh the trade-offs and assess your broader capital strategy. Here are a few key elements to consider:

With most non-dilutive sources, especially debt or revenue-based financing, you agree to repay the capital over time. To take on that risk, you’ll need to have confidence in your company’s cash flow and revenue trajectory. Missing repayment obligations will only add stress to your operating budget and potentially harm your credit profile.

Many non-dilutive sources require companies to meet specific thresholds for revenue, creditworthiness, or IP value. If you’re early in your growth curve or lack consistent financials, these options might be limited or come with higher costs.

Unlike equity investors, most non-dilutive capital providers will take more of a backseat role in helping guide strategy. While this can offer the benefit of more autonomy, it also might mean fewer introductions and less mentorship depending on your specific capital partner.

In reality, most companies find success through a blended financing strategy that uses a combination of equity and non-dilutive funding sources to meet different needs. The key is to align capital structure with your current financial health and ongoing growth goals. For example, you might use venture debt to fund a high-confidence expansion while holding off on equity until you can justify a stronger valuation.

At a time when founders are being asked to do more with less (and aiming to hold onto ownership while doing it), non-dilutive funding offers an appealing path forward. Whether it’s venture debt, revenue-based financing, or other capital types, non-dilutive funding can help your company:

As with any financing decision, it’s still critical to confirm that the deal structure is a good match for your stage, needs, and growth plans. At 5th Line, we help growth-stage companies manage complex capital management and transactions. Our team can help you evaluate the right mix of financing to support your goals without unnecessary dilution.

Ready to explore how non-dilutive funding could fit into your capital strategy? Connect with the 5th Line team to learn more about making smarter funding decisions at every stage.