The Ultimate Guide to Non-Dilutive Startup Funding

What Climate Founders Need to Know About Venture Debt and Revenue-Based Financing and When to Utilize Them

Whether you are a climate startup building game changing carbon capture tech or a next gen battery startup revolutionizing the future of mobility & energy (like 4WARD.VC portfolio company: EExion), you probably know your way around the VC world. Maybe you’ve checked out our 780+ Climate VC & Accelerator database, raised money for venture capitalists or come at climate tech from a conventional startup background and are well-schooled in the world of startups and venture capital (for more on the pros & cons of VC funding, see this post).

The thing is, while VC funding can be rocket fuel for your business, it isn’t ALWAYS a great fit — especially for climate companies. Especially at the later stages.

Because VC funding is the MOST expensive source for capital. You’re trading equity for cash. And at the later stages when the business is significantly de-risked, that math doesn’t always add up in your favor.

This is ESPECIALLY true with capital intensive climate companies — think hardware, infrastructure, heavy industry, manufacturing… sectors that require massive upfront capital investments.

Tesla’s famed Gigafactory is projected to cost $1.1B. That’s a lot of dilution for a company like Tesla who could raise debt in the public or private markets at miniscule interest rates.

And the same is true for many climate tech startups — albeit not with traditional banks (who only work with larger and more established businesses)

Which is where other forms of non-dilutive funding come in.

Full Databases to Access:

The 3 Types of Non-Dilutive Funding for Climate Startups

  1. Grants (Basically “free” money from governments and institutions to promote jobs/research/business etc…) — Bonus info below on Grant Advances from Enduring Planet.
  2. Venture Debt
  3. Revenue-Based Financing (RBF)

**NOTE: Since most of you are familiar with governmental grants and the grant application process, we will mostly skip this for the purpose of this article. That said, grants are a PHENOMENAL way to fund early R&D and product development and should be a part of almost every hardtech climate company’s funding strategy (especially in the EU). It is also worth noting that while there are almost unlimited sources of grant capital available for those who know where to look, the process is often quite lengthy, somewhat political and should not be the core of funding your company, but an additive to venture capital and other forms of non-dilutive funding.

What is a Grant Advance?

Have you applied for and won grant funding from an organization or foundation to develop your technology and business? Did you know you can get an advance on your grant award — ie. cash without having to wait the full funding timeline?

The great news is, Enduring Planet (our favorite non-dilutive partner for climate companies because they try to be almost as helpful as 4WARD.VC). recently launched an ultra-innovative Grant Advance product alongside their already popular revenue-based financing. So, if you’ve won a grant but are waiting on your first/next reimbursement and need cash faster than the lengthy grant funding timelines allow, check out Enduring Planet and tell them 4WARD.VC sent you Dimitry and team will take care of you, get you your money and get you on your way to building your business.

Visit 4ward.vc/enduringplanet for more details and to apply.

Add your email here to get our downloadable Climate VC database and bonus growth & fundraising guides

What is Venture Debt?

Venture debt (ie. venture lending) is a non-dilutive type of financing often used by high-growth startups and companies looking to scale without giving more equity (like a bank loan, but for startups that don’t have years of track record and a proven revenue history).

While the exact structure for venture debt varies greatly, it is usually some form of term loan with interest payments and warrants (for more on warrants, see below glossary).

NOTE: Many companies (especially climate companies) utilize a combination of VC funding and non-dilutive funding (venture debt or revenue-based financing) to build and grow their companies in the most efficient way possible.

As a rule of thumb, VC funding is used in earlier stages and more geared to “high risk” activities like product development, go-to-market, R&D, growing the team etc… while non-dilutive funding works well for companies with established track records and business models looking to scale what is already working — for instance, fulfilling expensive hardware purchase orders, building up manufacturing capacity or pouring into sales and growth activities.

When it comes to venture debt providers, we personally like (be sure to tell them 4WARD.VC sent you :):

  • Lighter Capital: Up to $4M in non-dilutive funding for $15k+ MRR companies in the US, Canada and Australia

For a full list of venture debt and rev-based financing providers for climate companies, see the below database

What is Revenue-Based Financing?

Revenue-based financing is a type of business loan (primarily for growth related costs: hiring, marketing, sales etc…) calculated as a percentage of business revenue, rather than a fixed amount of capital. This is great as it allows companies to quickly access growth capital in exchange for a set percentage of future revenues.

Unlike other types of financing, it is a relatively fast approval process (as it is mostly based off analyzing existing revenue numbers — typically at least 6 months of revenue) and there’s no equity or personal guarantees involved with rev-based financing, making it a much safer option for startups because the lender does not have control over your business.

Additionally, rev-financing provides more flexibility than traditional debt because rather than repaying a fixed amount to a lender each month, you only need to pay a set percentage of your sales/profits so your repayments increase when your revenue goes up and decrease when sales are low — meaning you can always make your payments.

Additionally, monthly payments are generally capped at a multiple of the loan, providing more predictability and ensuring you don’t pay ridiculous amounts to the lender.

When it comes to revenue-based financing, we HANDS DOWN recommend Enduring Planet as they have a similar philosophy and model as us here at 4WARD.VC, being the most value add investor (be sure to tell them 4WARD.VC sent you :):

  • Enduring Planet: $100–500k for US companies with > $25k/mo and > 35% gross margins

(NOTE: They can also offer you grant advances, so if you’re going to receive EU Horizon Funding or IRA money etc in 6–9 months, they can front you the money today — how cool is that Visit 4ward.vc/enduringplanet or see above on Grant Advances for more details.

Other solid choices include:

  • Outfund: $20k-$10M in rev financing for step-wise loans to scale your $13k+ MRR company in the US, Europe and Australia.
  • Lighter Capital: Up to $4M in non-dilutive funding for $15k+ MRR companies in the US, Canada and Australia

For a full list of venture debt and rev-based financing providers for climate companies, see the below database

And if you’re looking for VCs and equity-based financing, check out our ultimate Climate Investor Database here.Or just reach out for 4WARD.VC to fund your pre-seed or seed round!

PRO TIP: When to Raise Non-Dilutive Funding

As a rule of thumb, the best time to raise money is when you don’t need it — because you’ll get the best terms. This equates to raising when either a) your cash rich from your latest VC raise or b) your business is printing money and wants more “firepower” to scale what is already working.

Don’t Use Venture Debt or Revenue-Based Financing If

  1. You can’t guarantee repayment
  • Do you have a high burn rate?
  • Do you have less than 6 months of cash on hand?
  • Are your revenues unpredictable or not proven?

2. If the terms are too expensive

  • Paying back the debt will hamper your growth. Look at the costs and terms and ENSURE you can pay it back and achieve the growth you’re targeting. If not, or if it would hamstring your company’s growth and success, don’t take debt

3. If your VCs and Angels aren’t onboard

  • Building a startup “takes a village”… you need to avoid alienating your existing investors and some VCs and funds don’t like venture debt or revenue-based financing.

At 4WARD.VC, we are big fans of non-dilutive funding (where it makes sense) and would love to help you find the right venture debt or revenue-based financing providers to help you grow and scale — because climate tech and hardware is hard and expensive, and we don’t want you to lose all your equity and upside in the business!

Advantages of Venture Debt and Rev-Based Financing

  1. You generally don’t have to give up equity
  2. You don’t have to give up board seats
  3. You generally have more favorable terms and fewer personal guarantees/liability compared to traditional bank loans

The Most Common Uses for Venture Debt

  1. Extend your companies runway to your next venture round
  2. Extend your companies runway to reach positive cash flow
  3. A backup plan if things doing go “according to plan” with sales and funding
  4. Alongside an equity raise to reduce founder dilution
  5. To maintain control of the board and company

Recommended venture debt providers (be sure to tell them 4WARD.VC sent you :

  • Lighter Capital: Up to $4M in non-dilutive funding for $15k+ MRR companies in the US, Canada and Australia

The Most Common Uses for Rev-Based Financing

  1. Accelerate growth by boosting marketing and sales
  2. To launch new product lines or marketing channels
  3. Instead of an equity raise to reduce founder dilution
  4. To maintain control of the board and company
  5. Reduced risk funding — raising money in small, manageable chunks

Recommended rev financing providers (be sure to tell them 4WARD.VC sent you :

  • OUR FAVORITE: Enduring Planet: $100–500k for US companies with > $25k/mo and > 35% gross margins (the most climate founder friendly and aligned. Application only takes 10 mins and they fund FAST)
  • Outfund: $20k-$10M in rev financing for step-wise loans to scale your $13k+ MRR company in the US, Europe and Australia.
  • Lighter Capital: Up to $4M in non-dilutive funding for $15k+ MRR companies in the US, Canada and Australia

A quick non-dilutive funding example:

Take two different climate tech teams — both with three founders.

One team raises a Pre-Seed and Seed round (20% dilution each) and then grows organically and via non-dilutive funding to $300M/yr in sales within 8 years.

The other team however stays on the venture train and raises 5 rounds (20% dilution each) to hit $200M/yr within 8 years (a bit less due to paying back the debt and/or rev-based financing).

Company 2 is forced by the board to go public (even the founders would prefer to stay private) and hits a market cap of 10x ARR (annual recurring revenue) = $3B valuation. At this point, each founder owns about 11% of the company and would walk away with a nice $330M.

Company 1 on the other hand had only 36% dilution (vs 67.3% for team 1), meaning the founders are left with 21% of the company each. Not only do they control the company and the board, their equity’s worth ±50% more — all thanks to taking less dilutive funding.

The Cost of Venture Debt

The average cost of venture debt from venture debt lenders is typically between 12–15% (dependent on the economic situation, your company’s situation and track record and who you work with).

Obviously venture debt is more expensive than a traditional bank loan (typically several percentage points of interest), but is also less restrictive with clauses, cash flow covenants or personal guarantees and more accessible for relatively “risky” startup companies.

The Cost of Revenue-Based Funding

The average cost of revenue advances (rev-based financing) varies greatly depending on the situation, provider and stability/track record of your company’s revenue history. For example, with 4WARD.VC preferred provider Outfund, you’ll pay 5–6% of the total cash advance — $5–6k on a $100k advance (total repayable is 106K) paid out as a fixed percentage of your daily revenues.

NOTE: Revenue financing only works well for companies with consistent revenues and strong margins. If you can’t afford to give up 1–20% of your revenues/margins, rev financing may not be for you.

NOTE: Many companies that use rev-based financing to grow and scale do so over the course of numerous, manageable “financings.” This means, if you start with a low risk cash advance of $10–20k, you can easily scale up to $100k, $1M, $10M etc… as your company grows and your lender gains confidence in your ability to repay (which also generally means better terms

The Fundraising Process for Venture Debt

How Long Does It Take?

It depends greatly, but typically anywhere from 4–8 weeks.

The Application Process Itself

  1. Origination: Finding the best venture debt providers (see our list below)
  2. Initial Screening: Pitching your company to the lender
  3. Term Sheet: Like with VCs, but for debt terms
  4. Due Diligence: You know the drill
  5. Legal Documentation
  6. Funding: Wahoo!

The Fundraising Process for Revenue-Based Financing

How Long Does It Take?

Rev-based financing is MUCH faster than venture debt or equity financing, sometimes as fast as 24 hours after applying — because it is dealing with smaller loan amounts and is ALMOST ENTIRELY based on your businesses sales and revenue history.

Important Terms and Criteria for Non-Dilutive Funding

Warrants: A right to invest in the company at a later date

Warrants are very common to venture debt and provide debt lenders with the right (but not obligation) to buy common equity shares in the company at a fixed price within a certain period of time and are used to make the terms more attractive for lenders.

Basically, if you use the money to increase your valuation, they’d like the ability to invest into the company at a preferred valuation and also participate in the upside.

NOTE: Typical venture debt warrants are for ±1–2% of company equity (which is still much lower than the 15–20% dilution of a typical Series A, B etc…).

Principal: The total amount of the loan/cash advance

Payment Schedule: How and when the money will be paid back

For venture debt, this is typically a term loan with interest and principal repayment over a fixed period of time (months or years).

For rev-based financing (RBF), this is typically a percentage of revenue (1–7%) paid back monthly until reaching the agreed upon repayment total (for example: 1.01–1.07x loan with Enduring Planet)

Cost of Capital: Additional fees or expenses lenders charge on top of repayment

Covenants: Agreements and compliance requirements between the company and the lender

Default: What happens when you’re unable to repay the loan

Repayment: Paying back the loan

What if you can’t pay back the loan?

Refinancing: Finding another lender willing to give new loan and repay existing one

Restructuring: Negotiating a “more favorable” repayment plan

NOTE: Venture lenders have the right to foreclose and sell off your company’s assets, but try avoiding this (where possible) and are often willing to restructure the loan for more flexibility.

Venture Debt vs Rev-Based Financing for your climate company?

Do you have consistent sales and are looking for fast, low-risk access to growth capital? If so, revenue-based financing might be for you — in which case you should check out Enduring Planet, Lighter Capital or Outfund.

Are you looking to bridge (or replace) a venture round, develop the business and product line further or reach profitability? Then venture debt might be a better fit — so talk to Lighter Capital or Viola Capital.

Have you won a grant but need the money sooner? Then Enduring Planet’s Grant Advance Program would be perfect for you. Reach out and be sure to tell Dimitry that 4WARD.VC sent you

Need help finding top providers?

Feel free to reach out for help: matt (at) 4ward.vc

Here’s the full Non-Dilutive Funding Database

Here’s the full 780+ Climate VC & Accelerator Database

Our Preferred Non-Dilutive Partners!

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Matt Ward

Climate Syndicate Lead @ 4WARD.VC | Startup Strategy & Growth Advisor @ mattward.io | Serial Founder: 3 Exits | Looking to join top Climate/Impact VC Fund