Non-Dilutive Funding for Startups
While private investment such as VC or Angel investment is popular and widely discussed, there are other strategic options that may be right for your company. Grants, loans, tax credits, revenue share agreements and more are all examples of strategic funding that does not require giving up equity or repayment.
In This 1-Hour Session, We Covered:
- Approaching Non-Dilutive Funding Options
- Ways to best spend Non-Dilutive Funding
- Assessing Opportunities
- Funding Tools and Resources
- Creating a Funding Strategy
About the Speakers
Sedale Turbovsky, Co-Founder & CEO, OpenGrants
Sedale Turbovsky is the CEO and co-founder of OpenGrants, a venture-backed startup focused on building modern infrastructure for funding. He has been an entrepreneur since childhood. After honing his leadership skills as an outdoor guide in his younger years, he started his professional career as an independent consultant focused on delivering data products and digital strategies to enterprise clients in South America. He is experienced in independent grant writing and public/private partnerships at the highest level, having worked directly with OpenGrants’ current strategic partner, Momentum.
Bobby Gilbert, Co-Founder & CEO, FundStory
- Sedale’s Linkedin
- Sedale’s Twitter
- FundStory website
- Small Business Development Centers (SBDC)
- Small Business Administration (SBA)
Read the Transcription
Please note, this transcription is automatically generated and may contain some spelling and contextual errors.
All right, everybody. Welcome to the non-dilutive funding for startups webinar. My name is Sedale Turbivsky. I am the CEO and co-founder here at OpenGrants. Super excited to be joined by Bobby Gilbert from FundStory today. We’re going to get into introductions in a little bit, but as people trickle in, I just want to go over some basic housekeeping stuff.
Today we’re on a webinar that is fairly locked down just to keep interruptions to a minimum and to keep out any sort of bad actor. So please use the Q and a section to submit any questions you have. We will be breaking. Towards the end of the webinar to allow for about 15 minutes of Q and a, but feel free at any point during the webinar, get your questions in and Bobby and I will do our best to get to all of those today’s webinar will be recorded.
So it will be posted on YouTube. There’ll be transcript. It will be posted on our blog. And so it will be available after the event. So don’t worry if you have to leave early or if you are checking in just to see if he can check out we will have this available afterwards. So super excited.
We’re going to go ahead and get rolling. I see a bunch of folks who have joined already. And so I’m just gonna really quickly reintroduce myself. My name is Sedale Turbovsky, the founder and CEO of OpenGrants and OpenGrants is the easy way to win grant funding. So we help streamline access to grant funding. We help do grant discovery as well as connect you to high quality grant consultants who can help you really optimize your experience in securing grant funding and Bobby, super excited to have you here. Why don’t you go ahead and introduce yourself.
Absolutely. Thanks for having me Sedale, super excited about this. I’m Bobby, CEO, co-founder of FundStory, FundStory is the operating system for non-dilutive capital. We make it very easy for tech enabled businesses to tap into rev share agreements, lines of credit loans, any form of non-dilutive funding.
Awesome. I love it. We’re going to dive into that in a minute. Before we get to that though, I’m going to go ahead and for everyone who’s attending today, thank you all so much for coming out.
We appreciate you taking the time to join us today and we hope this is super useful. We want to just get y’all’s feelings on, how y’all are doing. We’re really excited to have you here. So please just feel free to respond to the poll. I just put out there. How are you feeling today? And in the meantime, I want to reiterate that if you have any questions, as we are going through our presentation Bobby and I are going to have a bit of a discussion we’re going to get into what is non-dilutive capital, what is FundStory?
We’re going to talk a bit about that and how you can leverage this great resource to fund your ventures. But at the end we will have a Q and a section for about 15 minutes to do you use the Q and a tool, but also feel free. You can hold your questions of course, and try to get them in.
And al so seeing lots of great engagement on the poll, it sounds everyone, most people are excited to learn. And I’m going to go ahead and end this poll and we’re just going to get into it. A lot of you were super excited to learn optimistic. Some of you are a little skeptical about non-dilutive funding, and I really hope that those of you who are skeptical, reach out, send us questions.
We want to hear why you’re skeptical because personally I’m very bullish on this whole space. And the, so you’re looking for some inspiration. Hopefully we can be a source of that. And then there’s another group who didn’t fall anywhere on the spectrum. So feel free to feel free to engage and if there’s ways for help us address how you’re feeling throw those questions in the Q and a tool as well.
So we’re going to just, we’re going to just going to get into it a little bit here. I’m going to go ahead and stop sharing the screen. And just wanted to, from your perspective, Bobby what, non-dilutive capital is a, it’s a big term we use it a lot. What is, what does non-dilutive capital, what does that mean?
If we can just let’s establish that baseline for everyone here. Who’s listening.
Absolutely. So non-dilutive capital is any form of financing that doesn’t require you to give up ownership or control and your business. So this could be any form of financing where you don’t have to give up equity.
So that could be, alone venture debt rev share agreements, merchant cash, advances, factory, even subscription, securitization, and grants. Of course.
Awesome. Yeah, that’s a lot of stuff. I, I think and it really, it begs the question. It sounds like there’s a lot of options out there and undeliverable, and I know there’s a lot of options out there and non-dilutive capital.
But I’m sure that you even know of more of them than I do. I just focused on grants, which are pretty sweet. You don’t have to pay them back and they don’t require that you go up ownership. So they fall into that non-dilutive capital bucket, but there’s so much other stuff out there. There’s stuff that I know, like revenue based financing, there’s all kinds of different tools that allow you to, instead of going that route of getting an investor who takes over some control or gets over, get some ownership of your business, there’s other ways to get funding in.
And that’s one of the things that instantly made us look at fun, like this is the kind of partner that we want to work with. Can you tell us a little. So you talked about the operating system for a non-dilutive capital, why do you need an operating system? What does that, and, w why’d you build fun stories?
Yeah. Great question. And so on. So we built FundStory because of the complexity, of non-dilutive capital. There’s a massive immersive universe of disparate funding types, as you mentioned. And the way we like to organize this. Is through payback. You mentioned grants, you don’t have to pay back.
And the better way to describe non-dilutive capital is to think about dilute of capital, because there isn’t as many options that are out there on the other side of the spectrum. So dilute of capital, you’re talking about angel investment, right? You have to give up ownership to, do that, or, venture capital, you’d have to give up some ownership to take in venture, private equity, that kind of thing.
So there’s a lot less diluted financing options than there are. Non dilutive. Think of it that way, but another way we like to organize the universe of non-dilutive funding is through payback. We like to think of non-dilutive funding organized into four different categories of payback. So fixed payback.
This is where you’re paying back a monthly payment and equivalent amounts. The payback is fixed every single time. And that can include term loans, for example variable payback. This is where your payments would fluctuate over some set period of time depending on maybe your revenue, for example.
So a rev share agreement, like you mentioned previously or a merchant cash advance that’s variable payback. Another form is customer payback. This is where your customer is paying back the financing. So that could be through a factory or so subscription, security. And then of course, no payback with grants and tax credit.
And that’s how we like to organize the universe. And so the reason why you need an operating system is because the, the universe can be complex and hard to manage. And the difference between the biggest difference between dilutive and non-dilutive is the payback, right?
You have to pay this funding back and non-dilutive capital is non-permanent meaning because you’re not giving up ownership, you have to pay this funding back. And the reason why it’s important to manage this process with an operating system is because you want to not only qualify for the funding, but you want to pay it back.
And so once you tap into the financing we’re going to help you manage your payments over time and all kinds of things like refinancing, and it can get really complex from there. But Quick short answer. There is multiple stages of non-dilutive funding and we want to help you manage each stage.
Awesome. And I want to drill down on that just a little bit. So it sounds and I heard especially for maybe the uninitiated, there’s a lot of like lingo and buzzwords and all of that, but at the at the end of the day it seems like there’s a lot of different ways to get this money in and, depending on how you’re paying it back and what kind of what kind of capital you’re using you might need different tools.
Is that fair to say? Yeah, that’s very fair to say. And also, and this is something that I’m particularly passionate about and maybe, I don’t know if everyone realizes, like you could stack different kinds of funding, right? Like you could use grants and you could use like a variable loan and you could use a fixed rate loan for capital X, like for infrastructure.
And then you could probably use, revenue based financing, if you have. Revenue in play and you’re using that infrastructure and you’re using grants for something else. Does FundStory help you manage like all these different products at once?
So tell, so part of the insight that we learned during our beta was that point you just made. Oftentimes we found that founders were managing multiple forms of non-dilutive capital and it could be through a credit card, a business credit card, and simultaneously managing the payments for the credit card, with their term loan, and then simultaneously managing those.
With a grant and then simultaneously managing that and potentially looking at a revenue share agreement. And so all of these disparate funding options have different payback periods have different costs and they have different use cases to deploy the capital. And so what we want to do is to help founders is help them think through their cost of capital, how to outperform their cost of capital.
And Halakha how to allocate every dollar to the optimal use case based on the cost. And for example, if your cost of capital with a credit card is higher than your term loan, how do you think about, your expenditures? And so that’s why it’s an inclusive operating system.
Awesome. I love it. So what, like no OpenGrants, we’re focused on streamlining access to grant funding and that’s what we do. And our vision for the future is really to have a single place where you could go and get all of the grants. That you could possibly eligible for. And that’s what we’re working towards is your vision for FundStory, to make this like the place to go get all your non-dilutive money.
What’s your vision for the future. And I’d love to hear also your story as a founder, because I think that would be really helpful. I’m happy to share some of mine, but, I think a lot of times as founders, whoever building tools for founders, this is maybe built out of some kind of personal pain or experience.
And I think I mentioned to you several times, like I wish FundStory was around when I was like trying to bootstrap a company together with a bunch of credit cards and like random loans and some venture and so yeah. Tell me a bit about like your vision for the future and why like how you arrived at this point.
Yeah. So I’ll start off with the sort of origin story. I’m a second time founder. And so my first startup we failed to raise venture capital. We were very new. We just, freshmen or sorry. Come out of college with some friends. And we have this idea for a B to C kind of mobile application.
And we went out to, to build the MVP. We got some users, we’ve got our friends to use this seed to use the mobile application. And we set out to raise some venture capital. We were very naive, we’re a new to tech. And we thought that venture capital was the only way to build a business and build a tech startup.
And so that’s what we tried to do and we weren’t able to fundraise. And we ended up wanting the business down and selling it for parks. And I learned a hard lesson that I didn’t have to learn twice, which is not every tech business is a good fit for venture capital. And that sort of stuck with me throughout the process of building fund story.
But prior to building fund story, after that Experience. I went in got a sales job at another startup and sold a banning shopper cart solutions into the e-commerce space into the Shopify ecosystem. And it was from that experience that I, I learned the second insight. Which was through talking through to potential customers and learning about their pain points and managing financing.
I’ve found that there were new products out there to fund the business. So for example, I would go on a sales call and talk to an e-commerce founder and they will tell me, Hey Bobby, we really like your software, we have to reinvest in inventory or we’re cash strapped.
And so I started to dig a little bit deeper in the customer discovery and understood that, maybe they were waiting on a line of credit or, they needed inventory financing. And that just blew my mind because I thought going into that experience, they needed to raise venture capital and they didn’t care about venture capital.
They didn’t care about putting together a pitch deck or pitching a VC. They needed, a merchant cash advance or, something. Line of credit or a term loan. And so they would teach me about their pain points, raising these different financing options. And so I put two and two together.
What you were saying, man. I wish I knew about these other products prior to the first experience. And but also I learned their their pain points. So they would talk through, the cost of their merchant cash advance eating into their margins and how that was a problem for them or finding, something cheaper line of credit or cheaper loan product.
And so the wheels started to spin for me. So not only learning from my personal experience, but also learning from personal experiences from other founders. And so I cobbled together those two insights and we set out to build fund. And so the first iteration of FundStory was really to build out a marketplace for non-dilutive capital and basically integrate with a bank, a cow, and the payment process as payment processor of the e-commerce store, and then algorithmically match with the optimal capital partner based off the.
And over time we learned that founders just don’t wake up one day and decide that they’re going to go into debt. Even though they might need financing, they, it doesn’t just happen that way. It’s not an episodic event. And so during that process, during our beta, we found that this is more of a story.
And so we found that, there’s a beginning, middle and end the beginning. You’re trying to organize, you’re trying to understand the space. Oftentimes founders don’t know, or they aren’t aware of the different products that are out there. So there’s this sort of preparations. And then once you’re ready to tap into financing, you have the qualification stage and tapping into financing.
And oftentimes if you’re qualified, that could take any anywhere in and around, call it 24 to 48 hours to, receive funding. So that’s ironically, the quickest part is the receive the funding once you qualified. And then after you received the financing, there’s this long process of paying it back, right?
And so you can’t really to solve the problem for the founder. You can’t really just focus on the transaction. And so we pivoted to be more of a lifecycle management solution and to be more of an all-inclusive operating system and that’s how a FundStory began. And so our vision is to, like you say, become this comprehensive tool for founders to manage and access non-dilutive capital.
And as broad as that may seem there are specific pain points that we plan to solve for founders in and around their. Both prior to funding, during funding and posts, funding, and more specifically it’s related to managing multiple forms of financing. So what you’ll find on our platform, you’ll be able to focus on multiple capital partners.
And then for example, you can key in, on OpenGrants. If you’re looking for a grant and we’ll help you tap into the open grant ecosystem. And let’s say you also want to tap into a line of credit, we’ll help you tap into that. And you’ll be able to manage both simultaneously, look at your cost of capital over time and have this heads up display view of your entire non-dilutive financial stack.
Oh, I love it. That’s so awesome. And I think, one of the things I hope at Tandy’s will take away from this today. FundStory is a great tool. Obviously you’re under no obligation to use it, although I suggest you do, but funding and money is such a, like a tactical tool.
And a lot of times in my experience, at least, this is my fourth startup in my experience, it’s not really sold to founders like that. Unfortunately, a lot of times it’s, whoever’s selling the money is like, Hey, this is the best money. And it’s the only money and here’s your money.
And it’s hard. It’s hard to say no to that when in the first sense that, all of a sudden you’re looking at money and you’re like, Hey, this is could be ours hard to say no in the moment. And so it just really helps to get very strategic about how you’re using funding. And this is one of the reasons I just loved level of fund story is doing.
And really the mission really resonates with me because. I’ve had the good fortune to work with some really incredible savvy operators and founders. I worked a, at a company called momentum, for example, when I watched the CEO and CFO there, scale it from, three to 30 and just go from, a half million to five in revenue and all over a period of about three, three years.
And it’s just incredible to watch that kind of growth happen at a company. And. They had some very like hard and fast rules about that and other tools, but I watched them layer on, and this is where I started to get some of my experience. Like I watched them layer on grant funding with loans, with they would get big government contracts and then they would go to a contract factoring company who would advanced them all the money from the contracts.
They didn’t have to wait the 90 days. They w they worked with a bunch of like revenue forwarding companies that would look at their ARR and MRR and get them a stack of capital to work with. And they worked with all of these really cool tools that ultimately resulted in them, maintaining profitability.
Over during all their growth period, never like never dipping into this burn. Like they, they didn’t have a burn, right? Everyone talks, especially in startup land about a burn rate. Like it’s something that you should have, and that it’s a normal thing. And, I will say that obviously venture capital has its place.
And you want to, sometimes when you’re building a really big business, you need to burn a bunch of cash before you can get to profitability. So that I was always like a little shocked, when like we work was blowing up and there’s all these problems, all of a sudden in Silicon valley there’s discussion, like maybe companies should have revenue.
That was a thing I heard come out of a, several buds baths where they’re like, maybe companies should have revenue. I just laughed. I was like, yes, that’s probably a good idea. So there’s a huge ecosystem and space out there that can allow you to do. Maybe you need venture capital, we’re a venture back to OpenGrants, LaVar investors.
And certainly it was the right tool for some of the things that we’re working on, but there’s a lot of other tools out there. And I think it’s really important to, as a founder, get like really crystal clear on what’s your funding stack looks like, and what you plan on using that to move forward and how to minimize your risk and liability as well as optimize for your ownership in your company that you’re building.
So the question I want to throw your way, Bobby is, with this backdrop of Hey, these are these funding stacks. What, like for you with FundStory and you don’t have to share specifically what your funding stack is, but what is your favorite funding stack? Or what do you think like for your business which I would describe as it’s like a SAS marketplace, right?
What’s the funding stack. You’re like, this is the ideal funding stack for for this business.
So that’s a great question. And I think the best way to think about it is more so along the lines of what do you want to be in five years?
What do you want to be right. And how do we reverse it, reverse engineer to that outcome? If you’re building a multi-billion dollar company you might need to take on some venture, right? If you’re building something that you want to have ownership of 100% and build, I hate to use this word, like a lifestyle brand or lifestyle company not to say that it won’t be a big business, but let’s say, you’re not trying to take over the world, you’re you’re happy with, a hundred million dollar outcome in terms of revenue, that kind of thing.
Whatever the outcome is We’re trying to reverse engineer from there. That’s the first thing I would do in terms of framing out your capital stack. And then the second thing is I would say, for tech enabled businesses, oftentimes what we see, founders oftentimes default to raising venture capital raising equity because of, just because VC does, let’s just admit it, it does an amazing job of punching above its weight class in terms of marketing and just getting attention.
You oftentimes see, the sexy press release with the founder in the team raising, tens of millions of dollars on tech crunch. And you’re like, man, that’s great. And you don’t see those kinds of, that kind of coverage when it comes to a $5 million line of credit.
And you wanna, you want to think about that and don’t let that distract you, but my point is, As your business is early on. The risk is very high. So the first call it six months in the business. First, eight months of the business, the risk is extremely high.
And you might want to raise some equity in that stage, right? You might want to raise an angel round or maybe take on some accelerator capital or some form of the ludic funding to, to, get off the ground a little bit. You still will have optionality, you still can control your destiny depending on the investors that you have.
And so that’s important. And then once your business has de-risked I think the optimal way to think about your tech your financial capital. Is to think about bringing in non-dilutive funding and especially when you have revenue tapping into those options.
So I think the optimal financial stack is equity in the. To de-risk to get it off the ground, get to revenue. Once you have revenue then you can take in, rev share agreement, maybe a line of credit or, some sort of non-dilutive funding option so that you can increase your revenue.
And again, this is all based off of your north star. If you want to go public one day, you might need some venture partners and strategics to get you there. If you want to, build a lifestyle business it might be better to you to, obviously you’ll need to raise non-dilutive capital because VCs are looking for the unicorn outcome.
So I would say reverse engineer off of your your north star. But in the early days, you might need to take on the ludic funding. And as you de-risk, you want to look into non-dilutive funding options. Now that’s not to say that you can’t do both for example, we oftentimes find that founders we’ll do the angel round the beginning, they’ll take on some non-dilutive capital and then they’ll raise venture and then they’ll raise, then they’ll after they raised their first kind of lead investment their major institutional round, then they’ll leverage that to take on venture debt.
And then, in between their series a and series B, they might, take on more debt or, some other non-dilutive funding option to optimize for the next round in terms of valuation. So you could be strategic with it. But I would think about your north star reverse engineering from there, and always be mindful of your risk relative to the cost of capital.
Awesome. No, that’s really great advice. And it, that kind of strategic approach is really, I think one of the things that often is missing from how people are approaching, you hear the unfortunate and like sad stories of founders who either exit or ended up building a massive business, but ended up with a fraction of the ownership they should.
And I’ve seen that in my own kind of network of like friends and colleagues, as well as just, on the news occasionally. And this is the problem is that often you get maybe so focused on whatever problem you’re solving that you forget, maybe about the business side of things.
I’d love to hear your thoughts on, it sounds and from our standpoint, like we feel like grants are incredible. And we, when we talked to funds, we’ve even partnered with a variety of funds and investors, investors love non-dilutive capital because it.
Like they’re interested in their ownership, stake, and then they’re interested in you as you are and how much they own of the business. So as you go out and maybe range, raise that angel round this can be a great solution to back it up. Or, from our standpoint, we always think of grants as they can get that great first check-in because you don’t the cool thing about grants is you don’t even have to pay them back.
So not only, this is an extreme reduction of risk, right? Getting money, you don’t have to pay it back. And it’s non-dilutive but I’d love to hear your thoughts on do you see like most as founders are thinking about those in attendance in particular as they’re thinking about should I use, should I go after non-dilutive money?
Should I go after VC? Should I use a combination. Does FundStory help you do that? Like strategic thinking? Is that something that you should get like a like a fractional CFO to do for you? What are you thoughts there on like resources that, that y’all might have, or that you suggest for people looking for non-dilutive money?
Yeah. Great question. So when it comes to, when it comes to thinking about, making a decision between venture and non dilutive our software doesn’t really play a role in that region. Oftentimes because this could be. First of all, it’s very hard to productize a solution around that because founders two founders could be building the same solution, but one may be more ambitious, right.
One may be looking to go public and trying to build a world changing company. And the other might be, happy with a, a nice $10 million outcome and a sustainable business. And not take so many risks and maybe they appreciate optionality the ability to own the.
Outright and control their own destiny. And so it’s hard to productize for that particular statistical use case. So we focus only on non-dilutive copper. We don’t incorporate any sort of, cost of capital calculator for equity. We don’t help you with cap table management.
We’re not connecting you to any VCs or angels. We want to be hyper-focused on non-dilutive and be the best at that. And if you do desire to, build a venture backed business, we want to be able to support you there as well, because just, as you mentioned, you could do both, but being hyper-focused on the use case of non-dilutive capital gives us the flexibility for both use cases.
I love that. Yeah, I think and I’ll just throw out a couple of additional suggestions on kind of resources, for founders, if you are looking for support on starting to strategize about this stuff. So that, like, all right I should go hop over to funds.
So try and get some diluted non-dilutive capital. And maybe I want to go to a VC first or maybe I want to, there’s some great resources out there for for founders some great free resources. In fact one of the most I evangelize about the come on, almost every webinar is the SBA and that’s BDCs.
These are federally funded groups across the country who can offer you financial planning advice or your business, and they can help you think really strategically about what kinds of capital they can help you strategize backwards about where you want to end up that kind of thing.
If you do want some additional advice there’s those resources out there. But I love Love the vision love, like the very strategic approach to navigating non-dilutive capital, personally, very bullish on the space with with our focus on grant funding and do feel strongly like that a lot of founders end up with less ownership of their company than they should.
Or they just do a lot of hard work and they create really interesting and valuable things and they end up like not making quite as much as they should because they just gave it. Didn’t think about it along the way. If you take anything away today just the strategy is incredibly important when you’re looking at this capital and this can really be a great way to reduce, the amount of the amount of dilution you get over time in your company or entirely reduce it.
If you happen to be lucky enough to build something that generates revenue immediately and. You’ve got like the risk profile. You need to just push that forward on your own. This can be a great way to build a huge business. And we’ve seen one of the platforms I always look at as the micro acquire. I don’t know if you follow them on Andrew has Becky on Twitter or anything, but he’s always tweeting out like, oh, there’s this other startup got acquired for a million dollars or 43 million, just so cool. Like really cool stats coming out of there. And so there’s a, there’s an evolving ecosystem around this space that I think is really interesting and compelling. And so for founders who are like, Hey, maybe I can throw together like a no-code tool. I could get revenue based financing with FundStory, and I could go sell it on micro acquire and have my exit.
That’s a story you can, you could create these days. And I think that’s a really compelling thing. I’m seeing a lot of questions stack up and maybe we’ll open it up for Q and a in a minute. But I just wanted to I just wanted to get your kind of like final comments, Bob.
Y like if you had to boil everything down to, like a core value proposition and maybe this’ll help folks who are on the fence about non-dilutive capital what’s the pitch? Like why should founders, like, why should you look at non-dilutive funding?
Yeah. Great question. So it could pick it piggybacks off of what you mentioned, right?
Optionality. If you want to sell your company to micro acquire on their platform or, anywhere else the, if you have 100% ownership of your company, you can make those decisions, you have the option to do so the increasing amount of people you have on your cap table, the amount of investors that you have the amount of VC that you bring on as you continue to go that VC route, your optionality decreases and you really can only generate one outcome for your initial.
And so in order for them to get their returns, and so you lose a lot of governance controls, you lose a lot of ownership. And so dilute non-dilutive capital gives you optionality and it allows you to fund your business while maintaining 100% ownership of your company. If you don’t take on dilutive capital.
So that’s the first thing optionality. The second piece is a dilution. So you’re not diluting yourself. You keep ownership of the business and equity is the most valuable asset. You has a habit as a founder. And you mentioned, SNL, all these IPO’s and great outcomes, but oftentimes you find, you look and you look at the sec filings.
The founder had like less than 10% ownership of the company. Look at Jack Dorsey, founder of Twitter, I think he owns less than 3% of Twitter in the acquisition. Now he’s going to walk away with, Over 900 million after Ilan the Ilan acquisition. But you look at that, he started off with a meaningful chunk and then dilution happened over time as he went public and raised venture capital. And so just think about those outcomes as a founder now, of course you wouldn’t be mad about a $900 million acquisition or, cash out. That’s just to say that dilution does take a hit over time.
So I would say optionality and maintaining ownership of the company. That’s why non-dilutive capital is very important. That’s why you should look at it. And even, and again, I don’t want to say that just because you’re raising non-dilutive capital, you can’t raise venture. Oftentimes we file find that VC backed companies are the most bullish on non-dilutive capital to, extend runway in between.
This is just a great way to firm up your capital stack. And so it’s definitely something you should look at, especially if you have revenue and even if you don’t have revenue things like grants or grants.
Awesome. I love it. All right. I’m going to launch a quick poll for folks just get your, take your temperature in terms of where you are with fundraising.
Like what’s your biggest challenges right now. And then we’re going to go ahead and open it up to some Q and a here. And I’m going to first take a stab at the questions that have come in so far. So while I get this up, if you, if y’all want to just respond to that poll and we’re going to bring this back up real quick.
So feel free. Also as we’re answering these questions feel free to find you, you can seek me out on LinkedIn, Twitter and you can get in touch that way as well. If there’s some questions that you want answered. And of course we’ll also be sending all of these resources.
Via email after the event is concluded. So definitely let us know what you’re feeling. I’m going to go ahead and end the poll now seeing some good engagement there. It sounds and we’ll just share these results with everyone here. The biggest challenge finding the right funder is in the lead, nailing down a funding strategy, understanding all your options, building relationships.
So please feel free. I’m happy to speak to some of these as well. Especially about finding the right funder. I think, that’s core to both Bobby and I’s mission and expertise. Certainly, and I think, especially in the world of non-dilutive funding, going using a tool like FundStory that helps aggregate all those options that are out there and helps you dial in and understand which one’s the best fit for you.
Huge bonus. How it can help you understand if grants are the correct way to go. And happy to talk a bit too about like how to nail down that funding strategy. And I think understanding all your options of finding the right funder, those kind of fall, hand in hand and building relationships all about networking, which is once again, I try to make myself as accessible as I can with the time that I have.
If there’s ways for me to make introductions for folks definitely reach out on LinkedIn Twitter and I’ll try to be as responsive as possible. But yeah, let’s dive into these questions we got about yeah. About 17 here in the Q and a. And I’m going to go ahead and stop sharing the screen again.
So the first one do you help a start up, apply for grants? See, yes. We can do that. So yeah should a startup exhaust every here’s a good one for you. Bobby should a startup exhaust every avenue of non-dilutive funding before they look to raise money through.
I think that’s a great idea.
As I mentioned, equity is your most valuable asset as a founder and you should take advantage of the non-dilutive options that are out there. For example, let’s say your business is doing 10 K a month of recurring revenue. And that you could potentially, take in some angel investment.
Maybe it makes more sense for you to tap into a rev share agreement instead of taking on, dilution and and having to deal with another person when you cap table, that kind of thing. And so I would exhaust every avenue before you give up your precious equity.
Another question for Bobby here, my company is currently applying for a loan where a new bookkeeping firm looking to utilize working capital. Would it be recommended to move forward with non-dilutive funding or might it hurt our chances at grants and other funding? I’ll just chime in real quickly and say that if you’re a small business alone is not going to hurt your chances for grants.
So I’ll just throw that out there and it might actually help with your grant because you could say that this is matching capital that we’ve been given.
Yeah great point there. And I would say every circumstance is different. If you’re looking at a deal on the table, depending on the sort of seniority of the deal and how the terms are organized in the deal some lenders may not want you to take on additional debt.
So just make sure you’re disclosing that to the, capital partner. But I would say it won’t hurt grants. I’ll look at that.
Awesome. Is there an AI lawyer driving or AI layer? Sorry. Is there an AI layer driving fun stories, matching engine or is it more human level? Metadata.
Yeah. Great point. So we are taking in data from payment processor accounting software and bank, a bank account information. We don’t have machine learning baked into this algorithm just yet. So there is calculations happening in real time. We try to update that every 10 minutes throughout the day.
But we are working on scaling the team and bringing on machine learning talent so that we can make our matching algorithm more sophisticated.
Awesome. How much does FundStory cost?
Yeah, so FundStory’s free and we charge lenders a fee if they are able to consummate deals. So we don’t charge founders.
We charge lenders a fee. Now our basic plan is free for founders, but founders could upgrade to our pro plan for augmented features.
Awesome. We another question here, we’re a digital product company. We work for nonprofits who got grants to some projects and says, I’d like to believe that there would be way for us to build impactful projects directly without going through nonprofits.
Instead of paying it back, we could pay it forward by making an impact on the community. I haven’t been able to make this concrete yet as a small business, we don’t have the resources to do all the paperwork to get the grant on our own. So it sounds basically that you might be looking for help with some grants submissions.
I would, one thing I’d suggest is creating a protocol and OpenGrants. I also suggest, as you’re looking at it, you might find some good non-dilutive capital options that aren’t grants for your work. Including if if you already have products and revenue revenue based financing can be really useful.
And there’s also loans and other great options out there. So lots of opportunities there. And there’s a couple others here grants for veterans. Yes. Lots of grants for veterans. Definitely, just the advice I’d give here is do you want to get really specific? There’s a lot of grants for better.
But they’re not called grants for veterans. They’ll be like grants for veteran owned businesses that are doing disaster recovery services for the FEMA. Like they’re really specific. So get, if you have a specific thing that you’re working on, look for that and then include the fact that you’re a veteran and that will help you turn up that funding more efficiently.
Answer about a question about getting grants outside of the United States. This person in particular, in Nigeria, there’s a lot of grant funding available for activities outside of the United States. But that is not a focus of ours set up in grants. However we are expanding and look forward to supporting that in the future.
The question about grants for intellectual properties there are, there’s a ton of grants for developing research. I assume that’s what you mean about developing IP. Lots of grant funding to do research and certainly a great place where you can get some really cool support really early on.
Great question here for Bobby. What kind of information is required to initiate funding? Do you need a business plan, other options for credit challenged individuals? What does that mean?
Great question. The information that we need to take in to the information that most digital native lenders need to take in is information from your payment processor, your accounting software and your bank account.
So if you have a bank account and you use Stripe for payment processing or any other digital platform, like an API or. You use, accounting software like QuickBooks our system can take in that data and then algorithmically match you to a partner. In terms of a business plan, you don’t need most of these lenders aren’t evaluating business plans are looking at quantitative data as opposed to qualitative data.
So they’re not, reviewing a business plan or a pitch deck and there are options, many options for cap credit challenge individuals. In fact most of the options on our platform don’t require a personal guarantee. They’re making database decisions, especially if you’re a digital native business.
And in order to the information is really just financial information from your company and they can make a decision based off of that.
Awesome. And then I didn’t catch that. Did you address in your response there the credit challenged individuals aspects.
Yeah. So you wouldn’t have to run some sort of credit check or it doesn’t matter if you’re credit challenged, they’re looking at the financials of the business, so you wouldn’t have to take in any sort of personal guarantee.
Awesome. Thank you for diving down on that a little bit more. And I just want to mention that this is an important distinction. Many times in. In business, do you have an opportunity to establish like the credit worthiness of the business itself? And a lot of times that’ll be based on a variety of factors, but revenue is going to be the main driver of that.
And so a lot of companies, instead of looking at, because there’s actually like credit agencies for businesses DUNS and Bradstreet being like so one that everyone knows, and I will note that their actual, their, like their contract with providing that info to the federal government recently is set to expire.
And they’re not going to be renewed for that. What a lot of lenders look at instead of what might be coming from like these business credit bureaus who’ve fallen out of Vogue and you can correct me if I’m wrong, Bobby, but a lot of businesses are, they’re just gonna look at your revenue and then say, okay, your revenue looks great.
No, that’s exactly right. And we found the new. The new era of digital lending these new players in the space, like the clear goes with the world, the amplitudes of the world pipes captures all these providers, the looking at your API information. And you can have a very low performing credit score, but if you have a very high performing business, as you mentioned, strong revenue numbers, that’s really all they care about.
And so as a result, you’re not able, you’re not, you don’t need to leverage any sort of personal guarantee to finance a deal. Yeah.
Awesome. Yeah. And I will say that this is not only in Vogue now, but it is the rule rather than the exception to the rule. However, the big space where the, it is, the exception to the rule would be the federal government.
So if you’re doing business with them, maybe a bit of a different situation however for grants, there’s no requirement for credit check on the business or on the person either. So just to be aware of that for everyone couple of questions here just on kind of logistics, if you help getting money from grants or other solutions to get paid beforehand all of our consultants who provide that help get paid up front from Bobby’s description and you can correct me if I’m wrong, fun stories free to use, but the lender will get charged if they ended up doing a deal with you.
So it’s free. Awesome. This is a great question. I actually don’t know exactly what happens in this case. I’d love to hear your insights. If a business fails would the non-dilutive funding and I’ll just speak to grants about this, but if you could speak about loans because I am curious, but if a business fails, what all these non-dilutive funding needed to be paid back by the individuals who founded the company now with a grant you don’t ever have, there’s no repayment requirement.
Although if you are, if it is proven that you’ve been negligent in your like negligent or grossly negligent in your execution of that grant agreement, you can get blacklisted from ever getting grants again. But I’m actually not sure what happens with I assume it depends on the entity type of the business itself.
Yeah. So if it’s a rev share agreement or some sort of like merchant cash advance speaking very broadly here there’s no recourse in that event. However, what you’ll find is in the agreement if it’s like a learn alone you’ll find that a debt deal is going to be senior and in, in, in the debt stack.
So if there is a bankruptcy whatever’s liquidated needs to be paid off first to that senior lender. And then let’s say you have subordinate debt underneath that. Again, in the liquidation event for bankruptcy after the first, the senior lender gets paid, then the remaining subordinate lenders get paid until there’s no money left.
But but what we found is, if you’re taking on like a rev share agreement deal or something like that which is different from a term loan there’s really no recourse.
Awesome. Great to know. Now I’ll just throw in the caveat that I and Bobby are not attorneys and you should consult your attorney before you sign anything like this.
And that there may be different like circumstances to any individual deal. Get an attorney the other thing there all right options to look up grants, select and apply for them. OpenGrants is a great option. FundStory is another great option. There’s publicly available options like grants.gov.
You can go to beta Sam, both free, massive federal databases of grants, and then there’s other companies out there that do grant aggregation and such. So lots of options for grants, search and discovery Thanks so much for the accolades. Jonathan says you guys are killing it. So thanks Jonathan.
Appreciate that. SBR STTR grants require at least one U S founder with 50% equity. What grants are available if a hundred percent of the businesses owned by non us founders? This is a great question. So on the grant side there’s a ton of the SPR is one really tiny federal program. And I know it’s the one that gets talked about all the time, but it’s a $138 billion.
750 almost $2 trillion federal budget. So it’s really a, just a drop in the bucket. There’s a ton of other programs out there and not SBR STTR that you can get typically you do have to have a business nexus around wherever that government or granting body is situated. For example, the California energy commission funds projects, they don’t really care what the founder makeup is.
But they do care if you’re doing business in California. So this depends there’s foundations that fund all kinds of activities small business and otherwise and they typically just are focused on certain impacts or locations. So you just need to meet. Eligibility requirements.
And the reason that, we built OpenGrants is because the university is huge. And it, the answer to these questions is always it depends on who you are and what you’re doing. I’ll just throw that out there. The shorter answer is it depends, but yes, there’s a ton of other opportunities out there and you just need to search for them.
And a great way to do it is creative. Create a profile and OpenGrants. But as I said, you can go to grants.gov. You can go to beta Sam, you can just Google stuff. There’s a lot of tools out there. Great question four for Bobby here does FundStory aggregate non-dilutive funding sources to explore in addition to helping manage them?
I think the answer is yes.
Yeah. In fact, you don’t need to create an account to do that. You can go to our website, we have a full directory of dozens and dozens of partners for you to evaluate and go even deeper. Once you do create an account and focus on these funding partners.
Awesome. All right.
Another question here. What do you recommend for organizations as they’re starting in the NGO space? I’m curious how payback is assessed in this area. What strategy would you suggest outside of grants and Bobby? I’ll let you feel that one first. I have some feedback, but it’s just about grant funding.
And I don’t know if you’ve seen a lot of NGOs come through your platform or not.
Yeah. Great point. You know what we haven’t so I can’t give you the best insight, their unfortunate.
Yeah. The NGO space is pretty, pretty unique and interesting. Grant funding is typically a lot of how they power their power, their activities because they are impact focused and typically fairly altruistic.
I would certainly, Strategize around frequently when you get a government contract. So you might, depending on where you’re working in the world, you might be looking at like big USAID packages that you could use. When you get those, you can use tools like FundStory, or you can use non-dilutive capital.
Because a lot of times performance with those grants may be based on like a reimbursement strategy. And so if you have a contract for three or $4 million, but you need to float three or $4 million in order to receive that money, you might look at like contract factoring or revenue based financing, depending on how that contract is structured and how your invoices work.
So there can be a lot of great opportunities there. But yeah, that’s a really interesting space. Thank you for the question. Another question here
This individual is starting a carbon trading company. That’s using blockchain. They’re doing a series, a raise for their first clean energy project in Africa. The proposition is to provide full initial funding for zero equity. So we retain a hundred percent equity and in exchange they take 50% of all carbon credits earned.
The value is maybe 40 million capital needed and the credits may rise to 40 megatons per year. Have you seen this used? It sounds like a revenue based like a revenue share agreement, but I haven’t heard of this before. It seems like a pretty, pretty solid edge case.
But maybe Bobby has some experience with this.
Yeah. This seems like a unique Edgecase here, Phillip, I’m happy to circle back with you by email. But we don’t see a lot of blockchain or web three companies use our platform. And I’m very interested in what you’re doing would love to maybe talk offline about it.
Awesome. All right. Love that. You mentioned the question that comes up with VCs. What is your runway? I have a CPD companies. That question gets a lot of laughs. Just a, just to comment here. Suggestions of how to answer that question for potential investors and CPG companies. Any thoughts there, Bobby, and just like answering that for VC?
Yeah. Yeah. So we see a ton of CPG companies tap into non-dilutive capital from a VC perspective. It really, it’s really difficult to answer that question, not knowing context around, the way you’re pitching or context around the pitch or the pitch deck, for example. But in general, in terms of runway that could be a challenge.
And so we find that founders tap into inventory financing or some sort of merchant cash advance or registry agreement to extend runway depending on seasonality of their business. Again, would love to, to chat with the founder to learn more And I think she has another follow-up question after that to explain rev share shared, if you don’t mind, I would love to tackle that to Dell.
Let’s do that. And I just want to note that we have about four minutes left here. I also wanted to end on let’s talk about rev share real quick. And then if we can knock that out and I have a couple of like lightening other ones just about FundStory in general. And maybe an example of non-dilutive funding.
So yeah, for sure. The most common structure of rupture agreements that we found on the platform, so you have three different kinds of variables that dictate your cost capital. So you have the, the funding amount, of course, the amount of funding that your. Then you have and the terminology changes depending on the partner and deal by deal case, but you have what I’ll call as a hold back rate.
This whole back rate is what the partner will take from your payment processor or take from your bank account every month, or it could be every transaction or it could be every quarter. So you want to know that this is basically going to be the biggest throttle on your cost of capital.
So you have the amount of money that you’re getting and you have this rate that you have to pay back. We’ll call it a whole back rate. This is a percentage. And so let’s say you receive $10,000. And you have a whole back rate of 10%. There whoever’s lending you, this money is going to require you to pay back that payback based on 10% of your revenue and any sort of frequency, like I said, every transaction or every month.
And then the last variable is what we’ll call a factor rate. Again, the terminology can change, but we’ll call it a factor rate. This factor rate is a multiple of the amount of money that was invested. Let’s say your factor rate is 1.2. You’re just going to take that 1.2 and multiply it by the amount of money that you received.
And in the example where you recently and you had a hold back rate of 10% in a factor of 1.2, that means you owe a $12,000. They’re going to get their $12,000 back by charging you 10% of your revenue over, a monthly basis, a daily basis. However, they remit the the revenue over time.
Now that whole back rate something you want to focus on because that’s going to dictate how fast you pay off the deal. So if your whole back rate is, I like to use big numbers so that folks can really understand how this works because the math is easier. But it, by no means. Is this interesting standard but let’s use, for example, the whole back rate is 50%.
That means for every dollar that you make, you’re giving back 50% of that you’re giving that 50 cents. And you would give back 50 cents until you payback the multiple your factor eight times, your, the invested capital. If you are a fact, if your whole back rate is high and your revenue was high, you’re going to pay off very soon.
And if you pay off your deal very soon, that means your, a cost of capital is going to be very high. Because on an annualized basis, you have to analyze your cost of capital. Let’s say if I, Lynn, you. $10,000 at a fixed interest rate over one year, 12 months. And another person lends you a $10,000 or the rev share agreement that has a 20% holdback rate and a a factor rate of 1.2.
Let’s say your revenue grows really fast and you pay off that loan in two months, right? With with the competitor, but with me, you’d pay it off in 12 months, right? If you pay off the loan in three months, your cost of capital has to be analyzed in that compressed time period. And so your cost is much higher than it would be with me because it’s spread out over 12 months.
So be very mindful if you’re looking at a rev share agreement, if nothing I said made. Taken the two, three numbers, the invested capital, the whole back rate, which is, which could be called something different in different deals, but it’s basically a percentage of whatever your revenue that they’re taking back every time period.
And then your factor rate, which is the multiple, your payback, the amount of money that you have to pay back over that time period. The higher, the whole back rate, the the more, more likely your cost of capital is going to be higher. And as I mentioned, the terminology will change depending on the partner.
So just be mindful if they, if you don’t, if you’ve never heard of you’ll may never see something called a whole back rate or a factor rate, but it’s essentially the same. They’ll just use different words. But those three variables, you want to be very mindful of it, and I’m happy to chat with anyone offline if an explanation, a deeper explanation.
Awesome. Thank you so much and thank you to everyone. Who’s stuck with us. No, we’re a little bit over time here. So appreciate y’all spending more time with us. Bobby, do you have any like parting thoughts to everyone whose questions didn’t get answered, we’ll do our best to get to those in our follow-up emails to everyone.
And we will also shoot out this video of course. And then you can reach us at info at OpenGrants dot I O but Bobby, at any parting thoughts for the audience here,
we’re here. First of all, Sedale, thanks for having me on. It’s always great to partner with you and OpenGrants and the best way to reach me on social media as Bobby O. Gilbert on all social media, Twitter Instagram I’m at Bobby Gilbert, you can search that on LinkedIn. And the best way to reach me is email@example.com. If you have any questions, see a lot of questions here in the chat. Yeah, you can reach me via social media or email.
Awesome. Thank you everyone for coming out today.
Definitely check out OpenGrants done. I owe for all your grants seeking needs, FundStory.com, check it out and reach out to us with any other questions you might have on social media. I am at on Twitter and you can just search my name. It’s pretty unique, so you can find me places. Just Google it.
All right, everyone. Thank you so much. We’ll see you all in the future and appreciate you all coming up. Thank you. Thanks for having me. So they’ll probably have a good one.