Here are the different types of funding instruments commonly used for startups.

The non-dilutive have NO impact on the % of shares you own but they minimise the value of the company by the total of non-dilutive funding that is still to be paid back, unless it’s directly linked to the revenues of the startups and then it’s part of the cost of sales.

The dilutive, have a direct impact on the number of shares, but as the startup grow, the valuation of the company increase and compensate or even exceed multiple time the capital invested.

Non-Dilutive Funding Instruments

These instruments do not dilute the ownership of existing shareholders, allowing founders to retain full control of their companies.

1. Grants

   * Description: Non-repayable funds provided by governments, foundations, or organizations for specific purposes.

   * Pros: No equity dilution, no repayment required.

   * Cons: Competitive, often tied to specific conditions or usage.

2. Debt Financing (Loans)

   * Description: Borrowing funds with the obligation to repay with interest.

   * Types: Term loans, lines of credit, and SBA loans.

   * Pros: Retain full ownership, predictable repayment structure.

   * Cons: Repayment obligations, interest costs, and possible collateral requirements.

3. Revenue-Based Financing

   * Description: Capital provided in exchange for a percentage of future revenues until a predetermined amount is repaid.

   * Pros: No equity dilution, flexible repayments based on revenue.

   * Cons: High cost of capital, impacts cash flow.

4. Factoring and Invoice Financing

   * Description: Selling or borrowing against receivables to get immediate cash.

   * Pros: Immediate cash access, improves working capital.

   * Cons: High costs, reduces overall profit margins.

5. Vendor Financing

   * Description: Suppliers extend credit by deferring payment terms to support cash flow.

   * Pros: No equity dilution, aligns with operational needs.

   * Cons: Limited funding amounts, dependent on vendor relationships.

6. Royalty Financing

   * Description: Capital in exchange for a percentage of future sales or profits.

   * Pros: No equity dilution, repayment flexibility.

   * Cons: Reduces profit margins, complex structuring.

7. Bank Loans and Lines of Credit

   * Description: Traditional financing with agreed repayment terms and interest rates.

   * Pros: No dilution, predictable payments.

   * Cons: Credit requirements, interest payments, collateral needs.

Dilutive Funding Instruments

These instruments involve giving up equity or potential equity in the company, thereby diluting the ownership stake of existing shareholders.

1. Equity Financing

   * Description: Selling shares of the company to investors in exchange for capital.

   * Types: Common stock, preferred stock, convertible preferred stock.

   * Pros: No repayment obligation, access to investor networks.

   * Cons: Dilution of ownership, potential loss of control.

2. Convertible Debt (Convertible Notes or Convertible Loan Notes or CLN)

   * Description: A short-term loan that converts into equity during a future financing round.

   * Key Terms: Discount rate, valuation cap, interest rate.

   * Pros: Delays valuation discussions, quick to set up.

   * Cons: Potential dilution, can be complex.

3. SAFE (Simple Agreement for Future Equity)

   * Description: Agreement granting rights to future equity without setting a price at the time of investment.

   * Pros: Simpler and founder-friendly compared to convertible notes.

   * Cons: Can lead to significant dilution in future rounds.

4. Mezzanine Financing

   * Description: Hybrid of debt and equity financing that converts to equity if not repaid on time.

   * Pros: Flexible structure, unsecured options available.

   * Cons: Expensive due to high risk, potential for equity dilution.

5. Warrants

   * Description: Instruments granting the investor the right to buy shares at a specific price in the future.

   * Pros: Provides potential upside for investors, flexible structuring.

   * Cons: Can lead to dilution, complex valuation process.

6. Initial Coin Offerings (ICOs) and Security Token Offerings (STOs)

   * Description: Startups raise funds by issuing digital tokens that represent equity or utility within the company.

   * Pros: Access to a global investor base, innovative funding mechanism.

   * Cons: Regulatory uncertainty, high risk, potential for significant dilution.

7. SPV (Special Purpose Vehicule)

   * Description: Legal entity acting as one investor in the Startup, for a fixed amount and valuation and having as shareholders small and medium size investors (FFF, BA, FO, HNWI...)