The Full Spectrum of Non-dilutive Growth Capital

The first major venture capital deal was made in 1957, in the form of a $70,000 investment in Digital Equipment Corporation (DEC). Since then, the industry has hardly evolved at all, until recently. 

Over the past few years, the pace of evolution has quickened. There are various investment models (the SAFE, the SEAL, revenue-based financing, and more). However, because the models are still quite young, there isn’t much publicly available data on them, let alone clearly defined definitions of each. 

This post is a simple attempt to simplify the conversation. I’ll dive in much deeper in following posts, breaking each financial instrument down into its component parts so that we can better understand the mechanics of them, but for now let’s consider that detailed breakdown as out-of-scope. 

Today, it’s all about simplifying the world of startup financing - particularly the non-dilutive realm. So let’s start with the basics: 

How are each of the non-dilutive financial instruments defined in layman’s terms? 

Leaning heavily on my experience in the startup finance space, lots of reading, research, and the collection of data on over 140 non-dilutive financing options, I’ve developed the below definitions. They are ordered roughly along a spectrum from debt → equity - meaning that the first item listed (Term Loan) is the most debt-like, while the last (SEAL) is the most equity-like. 

Have a different perspective? Do you disagree with any of the definitions above? I’d genuinely love to hear your thoughts. Please shoot me a note or comment so that we can develop a shared language (i.e., a commonly understood set of references, visions, experiences, and/or interactions that provide a foundation for strong communications) with regards to non-dilutive financing. 

With definitions of each type of financing somewhat settled, I then captured all of the typical attributes of each as well: 

There are certainly exceptions to the typical attributes as I’ve outlined them above. However, in my experience these are directionally correct in the vast majority of cases. If you disagree - please chime in so that the entire community of startup founders can benefit. 

No silver bullet

With a very general and broad understanding of the financial instruments we’ve covered here, it’s clear there is no silver bullet for all founders, and there’s no way to be 100% certain that a particular source of capital is the best one. However, after speaking with hundreds of founders looking for funding, it’s become incredibly clear to me that it’s really difficult to even understand the trade-offs between the various options. And if you can’t even properly account for the trade-offs, a founder can’t be expected to make the best decision for their company. 

As such, this is a framework that is meant to help all founders consider what trade-offs they are making when they decide to choose one type of financing over another. 

Hope it helps, and reach out to our team if you have any questions about anything growth capital-related.

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