Non-Intrusive and Non-Dilutive Capital

Non-Intrusive and Non-Dilutive Capital

Non-dilutive capital, sometimes referred to as non-intrusive capital, is capital received by an entrepreneur that does not affect the share ownership of the company. Typically, non-dilutive capital is in form of a loan that may require interest or carry special requirements about how the capital is used, but the capital will not impact the shares of the company.

Advantages of non-intrusive and non-dilutive funds

Using non-intrusive and non-dilutive funds as part of your financing strategy can be extremely advantageous in several ways. Firstly, non-dilutive funds can work towards providing critical cash to support your company’s development. Secondly, since non-dilutive funds do not require the sale of voting equity shares, it allows existing shareholders to retain company ownership and control.

Common sources of non-intrusive and non-dilutive funds

Listed below is a general overview of the various non-intrusive and non-dilutive sources.

Mezzanine Debt : cash is funded by a mezzanine lender in exchange for a mezzanine note which is issued by the company. The mezzanine note will have a current and a deferred interest payment and may also have a warrant to receive additional return at a pre-defined date. The cash is used for acquisitions, growth and expansion.

Government grants: Created to fund basic research or its commercial translation, such monies typically fund salary and consumables, but limit their contribution towards overheads or other non-research activities.

Industry partnerships: Typically, industry partnerships involve a transfer of technology from a small company to a large company in return for cash and/or co-development rights. These partnerships can involve significant sums of upfront and downstream cash flows.

Venture debt: Venture debt is often utilized to extend the runway of an existing financing round to allow the company to reach critical proof-of-concept achievements prior to follow-on investments.

Although non-dilutive and non-intrusive sources are a great way to finance early stage and growth companies, it should be noted that such sources of capital are not totally ‘free’, but rather come with their own set of implications and associated costs. Always seek the advice of an experienced financial advisory firm, before making important decisions regarding capital and investments.