Equity Funding vs. Non-Dilutive Financing: What's the Best Strategy for Your Startup?
Introduction
When you’re building a startup, one of the first major decisions you'll face is: Should you raise equity or pursue non-dilutive funding (grants, tax credits, loans)?
The truth is, there’s no one-size-fits-all answer, the right strategy depends on your stage, goals, and capital needs.
Here’s how to build a smart, balanced financial roadmap and convince both investors and public funders.
1. Early Stage: Prioritize Non-Dilutive Funding
At launch, your goal is simple: maximize cash without giving away equity too early.
- Key tools to activate:
- French Tech Grant (BFT & BFTE): €30k–€90k in non-dilutive public grants for innovative and deeptech startups.
- Regional grants: For prototyping, market testing, or technical feasibility studies.
- Zero-interest loans (via Réseau Entreprendre, Initiative France): strengthen your equity position.
- JEI status: Major tax and social security exemptions for R&D.
- CIR & CII tax credits: Get up to 30% back on eligible R&D spend.
- A startup with structured non-dilutive funding looks more credible to investors, it shows you're resourceful and can extend your runway wisely.
2. When It’s Time to Scale, Raise Equity
Eventually, non-dilutive sources won’t be enough. If you want to scale fast, equity funding becomes essential.
- What equity unlocks:
- Hiring key talent faster (tech, sales, marketing).
- Accelerating product development and infrastructure.
- Expanding to market with a strong go-to-market strategy.
- Keep in mind: fundraising takes time (6–9 months on average) and leads to dilution.
- Raise funds only if you have:
- A functional MVP or product with proven traction.
- Solid KPIs and market validation.
- A clear plan on how funds will be used.
- Need help with this? Talk to Flag.
3. Multiply the Impact: Combine Equity + Non-Dilutive Funding
The smartest startups combine both levers and make each one reinforce the other.
- Why it works:
- Raising equity increases your eligibility for larger public grants and loans
- Raising equity increases your eligibility for larger public grants and loans
- Investors love seeing a startup that can secure public funding it de-risks their investment
Example: Raise €1M in equity → add €200k in CIR + €300k Bpifrance loan = €1.5M runway instead of just €1M.
4. Build a Smart Financial Roadmap
It’s not about choosing one or the other it’s about knowing when to activate which lever.
- Early Stage: Subventions, BFT, zero-interest loans, JEI, CIR.
- Growth: Prepare for equity raise while continuing non-dilutive.
- Scale-Up: Combine equity + public loans + grants to accelerate.
- A well-structured roadmap helps you:
- Convince investors with a mature, strategic plan.
- Convince investors with a mature, strategic plan.
- Secure enough runway to stay focused on your product and market.
Get the Right Support: It Changes Everything
Grants, loans, tax credits, equity, they all come with different rules, timelines, and documentation.
- At Flag, we help you:
- Build a full financial roadmap tailored to your startup.
- Identify the right grants and subsidies you're eligible for.
- Prepare your fundraising at the right time, with the right narrative.
Conclusion: Don’t Choose, Combine.
You don’t need to choose between equity and non-dilutive funding. The real power lies in combining both, strategically.
Use non-dilutive tools early on to fund your R&D and validate your vision. Then raise equity when you’re ready to scale and maximize the leverage of both.
Talk to the team at Flag to build your financial roadmap and fuel your growth.
L'accompagnement de Flag : votre partenaire financier
- Flag: Your Strategic Financial Partner
- Equity fundraising
- Non-dilutive financing: Bpifrance, grants, loans, etc.
- Tax optimization (CIR, CII, JEI)
- CFO support (CFO-as-a-Service)
Not sure where to start? Reach out, we’ll walk you through it.
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