When a company sells newly-created shares to VentureSouth, the existing investors in the company get “diluted” – they own a smaller part of the overall “pie” of shares.
Non-dilutive funding means money coming into a company that does not cause a similar dilution. It might create some other kind of obligation, but not one that will impact who owns what in the company.
The term covers a wide range of things:
Revenue: the ultimate in non-dilutive funding!
Donations: charitable donations, donation crowdfunding,
Bank loans, SBA loans, or any other kind of loan – as long as the loan does not convert into equity, or have other equity “kickers” like warrants attached to them
Most of these are fairly obviously. The last one on the list, though, is a critical but often poorly understood source of funding.
For early stage technology companies in particular, Small Business Innovative Research (SBIR) or Small Business Technology Transfer (STTR) grants can be critical to getting started. The next post gives a deep dive on what they are.