Non-dilutive funding is a part of our company-building process, as well as a variety of funding programs and options that help our clients to develop equity and progress in their work. We at Grant Engine think that non-dilutive investment is critical to a company’s long-term development.
There are many examples of non-dilutive funding, the most common:
- Grant awards
- Bank loans
- (Forgivable) Loans from family and friends
- Licensing and royalties from products\
- Tax credits
- Crowdfunding
Running a business during the starting phase can be very difficult. It may be difficult to obtain traditional loans due to a lack of experience or poor credit history. Alternatively, the proprietor may lack industry contacts to reliable financial sources.
But whatever the cause, businesses may find it difficult to secure large sums of money with few strings attached.
Non-dilutive funding is particularly appealing to start-ups since owners retain complete control over their businesses. The whims of venture capitalists, angel investors, and other financiers are never a concern for business owners.
Owners who are secure in their leadership and have a clear understanding of the company’s long-term goals are especially dedicated to maintaining complete control. Furthermore, non-dilutive capital will not result in future financial rewards for foreign investors.
Founders can expect to spend three to nine months securing the financing they need to expand during this critical period. New businesses are frequently victims of unfavorable loan terms, believing that they will be unable to get a better offer.
Non-dilutive capital not only relieves the pressure but also allows owners to obtain more favorable funding terms because investors are less concerned with making a significant profit. Non-dilutive financing agents are drawn to a company’s long-term viability and longevity, which are more closely aligned with the company’s objectives..
In a piece for Entrepreneur Magazine, a Cleveland, Ohio business owner underlined the necessity of understanding non-dilutive funding possibilities. He could have raised $3.2 million for 29.3 percent of the company instead of $2.3 million for 42.2 percent of the company if he had used a combination of dilutive and non-dilutive funding during the first phase of growth.
Furthermore, he would have been able to sell his shares at a much higher price later, raising an additional $900,00 and gaining a 12.9 percent ownership stake in the company.
Non-Dilutive Terms
Outstanding stock
Outstanding stock, also known as outstanding shares, refers to all of a publicly listed company’s shares that are held by investors. Officers, firm insiders, and the general public are among the investors. The number of shares outstanding does not include any that have been repurchased by the corporation. The basic earnings per share, or EPS, of a firm, is calculated using its outstanding stock.
Undiluted Earnings Per Share
Divide a company’s annual profit by the number of outstanding shares to get its undiluted profits per share. For example, a corporation with a profit of $10 million and 10 million outstanding shares of stock has an EPS of $1.
Fully Diluted Earnings Per Share
Divide the company’s profit by the entire number of existing shares to get fully diluted profits per share, then add all of the shares the company would have to issue if everyone who had stock options or convertible bonds traded them in for stock. For example, if a corporation made $1 million in profit and had 1 million shares of stock outstanding, its fully diluted earnings per share would be 50 cents.
Price-Earnings Ratio
The P/E ratio, or price-earnings ratio, is a method of comparing corporate values. The P/E ratio is calculated by dividing the price of one share of stock by the fully diluted earnings per share of the company. A stock with a diluted EPS of 50 cents, for example, is selling for $5 a share. As a result, the P/E ratio is 10-to-1.
