How to Raise Funds Without Giving Away Equity in Your Startup
Equity funding gets most of the headlines, but giving away shares in your startup is not the only way to raise capital. In fact, some of the most successful companies in India built their foundations using non-dilutive funding, retaining full ownership while accessing the capital they needed to grow. Whether you are a first-time founder or a growing business looking to avoid further dilution, India offers a surprisingly rich landscape of non-dilutive funding options. This guide walks you through every viable option, from government grants and debt financing to creative approaches like revenue-based financing and customer advances.
Why Consider Non-Dilutive Funding?
Before diving into specific funding sources, it is worth understanding why preserving equity matters, especially in the early stages of your startup.
- Ownership retention: You keep 100% of the decision-making power and upside when the company succeeds
- Valuation protection: Raising equity at low valuations in the early stages gives away a disproportionate amount of ownership for relatively little capital
- Lower long-term cost: Equity is the most expensive form of capital because you share profits and exit proceeds forever with investors
- Operational freedom: No board seats, investor approvals, or reporting obligations that come with institutional equity funding
- Better negotiating position: When you eventually need equity investment, having alternative funding sources gives you leverage to negotiate better terms
Non-dilutive funding is not the right fit for every situation. If you are building a capital-intensive business that needs years before revenue, or if you need strategic value (mentorship, network, industry expertise) that investors bring, equity funding may be more appropriate. The best approach is often a combination of both.
Government Grants and Subsidies
Government grants are the most attractive form of non-dilutive funding because they do not need to be repaid and do not require equity. India has numerous schemes across central and state governments.
Startup India Seed Fund Scheme (SISFS)
The SISFS provides financial assistance to DPIIT-recognized startups through selected incubators across India.
- Up to Rs. 20 lakhs as a grant for proof of concept, prototype, and product testing
- Up to Rs. 50 lakhs as a loan or convertible debenture for market entry, commercialization, or scaling
- Startup must be within 2 years of incorporation and recognized by DPIIT
- Must not have received more than Rs. 10 lakhs in monetary support previously
NIDHI Programs
The National Initiative for Developing and Harnessing Innovations operates multiple programs:
| Program | Amount | Purpose |
|---|---|---|
| NIDHI Prayas | Up to Rs. 10 lakhs | Prototyping and proof of concept |
| NIDHI Seed Support (NIDHI-SSS) | Up to Rs. 1 crore | Early-stage startups for product development |
| NIDHI Accelerator | Up to Rs. 20 lakhs | Fast-tracked support through accelerator programs |
| NIDHI EIR | Up to Rs. 30,000/month | Fellowship for aspiring entrepreneurs at incubators |
State Government Startup Grants
Many states offer their own funding schemes:
- Karnataka Elevate: Grants up to Rs. 50 lakhs for startups in priority sectors
- Kerala KSUM (IDEA Grant): Up to Rs. 4.8 lakhs for idea validation, up to Rs. 15 lakhs for scale-up
- Telangana T-Hub: Incubation support with access to funding networks
- Maharashtra MSINS: Up to Rs. 15 lakhs for innovative startups
- Gujarat iCreate: Grants and incubation for technology startups
- Tamil Nadu TANSEED: Up to Rs. 10 lakhs for startups at early stages
Debt-Based Funding Options
Debt funding (loans) requires repayment with interest but does not dilute your ownership. Several government-backed schemes make loans accessible even for early-stage businesses.
MUDRA Loans
The Pradhan Mantri MUDRA Yojana provides collateral-free loans up to Rs. 10 lakhs through banks, NBFCs, and MFIs.
| Category | Loan Amount | Best For |
|---|---|---|
| Shishu | Up to Rs. 50,000 | Micro businesses, starting out |
| Kishore | Rs. 50,000 to Rs. 5 lakhs | Growing small businesses |
| Tarun | Rs. 5 lakhs to Rs. 10 lakhs | Established businesses needing expansion capital |
CGTMSE-Backed Loans
The Credit Guarantee Fund Trust for Micro and Small Enterprises enables collateral-free loans up to Rs. 5 crore from banks. The government provides a credit guarantee covering 75% to 85% of the loan amount, reducing the bank's risk. This is one of the most useful schemes for startups that lack collateral but have a viable business plan.
Stand-Up India
Specifically designed for SC/ST and women entrepreneurs, this scheme provides bank loans between Rs. 10 lakhs and Rs. 1 crore for greenfield enterprises. Each bank branch must sanction at least two loans under this scheme, making it accessible across India.
Venture Debt
Venture debt is provided by specialized lenders to venture-backed startups. It is typically raised alongside or between equity rounds to extend runway. Lenders include InnoVen Capital, Trifecta Capital, Stride Ventures, and Alteria Capital in India. Interest rates range from 12% to 18%, and lenders may require minimal warrants (0.5% to 2% equity). Venture debt works best for startups with institutional investors and predictable revenue.
Revenue-Based Financing (RBF)
Revenue-based financing is gaining popularity in India as a flexible alternative to both equity and traditional debt. It works particularly well for startups with predictable recurring revenue.
How RBF Works
- A financing company provides capital (typically 1 to 6 months of revenue)
- You repay a fixed percentage of your monthly revenue (typically 5% to 15%)
- Repayments continue until you have paid back 1.5x to 3x the invested amount
- If your revenue drops, payments decrease proportionally (unlike fixed EMIs)
- No equity dilution, no board seats, no personal guarantees in most cases
RBF Providers in India
- GetVantage: RBF for D2C brands, e-commerce, and SaaS companies
- Velocity Finance: Revenue-based financing for e-commerce and D2C brands
- Klub: Revenue share financing for consumer brands
- BridgeUp: RBF for SaaS companies based on recurring revenue
| Advantages | Limitations |
|---|---|
| No equity dilution | Requires existing revenue (not suitable for pre-revenue startups) |
| Flexible repayments tied to revenue | Total repayment (1.5x to 3x) can be expensive |
| Fast disbursement (days, not months) | Reduces monthly cash flow by 5% to 15% |
| No personal guarantee or collateral | Limited to revenue-generating businesses |
| No board seats or loss of control | Smaller funding amounts compared to equity rounds |
Crowdfunding and Pre-Sales
Reward-Based Crowdfunding
Offer early access to your product or exclusive rewards in exchange for upfront funding from supporters. This validates market demand while raising capital.
- Ketto: India's largest crowdfunding platform (social impact and product campaigns)
- Milaap: Focus on social causes and impact projects
- Wishberry: Creative projects, films, and products
- International platforms: Kickstarter and Indiegogo (for products with global appeal)
Customer Pre-Orders and Advances
The simplest form of non-dilutive funding is collecting payment before delivering your product or service. This works well for:
- SaaS products: Annual subscriptions paid upfront (offer 10% to 20% discount vs. monthly)
- D2C brands: Pre-order campaigns for new product launches
- Consulting and services: Retainer fees and advance payments for projects
- Manufacturing: Advance orders from B2B customers against purchase orders
Strategic Funding Sources
Corporate Innovation Programs
Large corporations run startup programs that provide funding, mentorship, and market access without taking equity (or taking minimal equity):
- Microsoft for Startups: Up to $150,000 in Azure credits and technical support
- Google for Startups: Cloud credits, mentorship, and network access
- AWS Activate: Up to $100,000 in AWS credits for eligible startups
- Nasscom 10,000 Startups: Incubation, mentorship, and industry connections
- Industry-specific programs: HDFC SmartUp, Airtel Startup Accelerator, Jio GenNext
Competition Prize Money
Startup competitions and challenges offer cash prizes without equity dilution. Beyond the money, they provide visibility, media coverage, and networking opportunities. Notable competitions include:
- National Startup Awards (by DPIIT)
- NASSCOM Product Conclave
- TiE Global entrepreneurship summits
- Smart India Hackathon (for tech solutions to government problems)
- State-level startup awards and pitch competitions
Invoice Financing and Working Capital Solutions
For businesses with B2B revenue and long payment cycles, unlocking cash trapped in invoices can provide immediate working capital.
Invoice Discounting
Sell your unpaid invoices to a financing company at a discount and receive 80% to 90% of the invoice value immediately. When the customer pays, you get the balance minus fees. Platforms like Credlix, KredX, and M1xchange offer invoice discounting for Indian businesses.
TReDS (Trade Receivables Discounting System)
TReDS is an RBI-regulated electronic platform where MSMEs can auction their trade receivables to multiple financiers. The three authorized TReDS platforms are RXIL, M1xchange, and Invoicemart. This provides competitive financing rates and is particularly useful for MSMEs supplying to large corporations and PSUs.
Building a Non-Dilutive Funding Strategy
The most effective approach combines multiple non-dilutive sources, matching each to your business stage and needs.
| Stage | Funding Need | Best Non-Dilutive Sources |
|---|---|---|
| Ideation | Rs. 5 to 20 lakhs for validation | Personal savings, NIDHI Prayas, competitions, incubator grants |
| Prototype/MVP | Rs. 20 to 50 lakhs for development | Startup India Seed Fund, BIRAC (biotech), customer pre-orders |
| Early Revenue | Rs. 50 lakhs to 2 crore for growth | Revenue-based financing, MUDRA/CGTMSE loans, invoice financing |
| Scaling | Rs. 2 to 10 crore for expansion | Venture debt, large CGTMSE loans, corporate partnerships, RBF at scale |
| Established | Rs. 10 crore+ for market leadership | Term loans, bond issuance, strategic partnerships, retained earnings |
Key Steps to Access Non-Dilutive Funding
- Get your entity registered: Register as a Pvt Ltd or LLP for credibility with lenders and grant bodies
- Obtain DPIIT recognition: Startup India registration unlocks government grants, tax benefits, and relaxed tender eligibility
- Get MSME/Udyam registration: Udyam registration provides access to MSME lending schemes and subsidies
- Maintain proper financials: Clean bookkeeping and accounting are essential for loan approvals and grant applications
- Build a strong business plan: Every non-dilutive source requires a clear plan showing how funds will be used and how you will generate returns
- Start building credit history: Take small loans, repay on time, and build a track record of financial responsibility
Conclusion
Equity funding is not the only path for Indian startups. The ecosystem offers a rich variety of non-dilutive options, from government grants that do not need to be repaid to flexible revenue-based financing that adjusts to your business performance. The key is understanding which sources match your business stage, having the right registrations and documentation in place, and building a layered funding strategy that reduces or eliminates the need to give away equity prematurely.
At IncorpX, we help startups and growing businesses set up the foundational registrations, company structures, and financial records needed to access these funding sources. From Startup India recognition to company registration and virtual CFO services, we handle the compliance so you can focus on building your business.
Frequently Asked Questions
What is non-dilutive funding?
Non-dilutive funding refers to capital raised without giving away ownership (equity) in your company. Unlike equity funding (angel investment, VC), non-dilutive funding lets you retain full control and ownership. Examples include loans, grants, revenue-based financing, crowdfunding, and government subsidies. The trade-off is that most non-dilutive options require repayment or have specific eligibility criteria.
Can startups really raise funding without giving equity?
Yes, many startups successfully raise funding without diluting equity. Options include government grants (Startup India Seed Fund, NIDHI), venture debt, revenue-based financing, bank loans (MUDRA, CGTMSE), crowdfunding, and bootstrapping with customer advances. The key is matching the funding source to your business stage, revenue model, and growth trajectory.
What is revenue-based financing (RBF)?
Revenue-based financing is a funding model where investors provide capital in exchange for a fixed percentage of your monthly revenue until a predetermined amount (usually 1.5x to 3x the investment) is repaid. Unlike a fixed-term loan, payments fluctuate with your revenue, meaning you pay more when business is good and less during slow periods. RBF is ideal for startups with predictable recurring revenue.
What government grants are available for startups in India?
Key government grants include: Startup India Seed Fund Scheme (up to Rs. 50 lakhs for proof of concept), NIDHI Prayas (up to Rs. 10 lakhs for prototyping), BIRAC BIG Grant (up to Rs. 50 lakhs for biotech startups), Atal Innovation Mission grants, MSME innovation schemes, state-specific startup grants (Karnataka Elevate, Kerala KSUM, T-Hub Telangana), and DSIR recognition for R&D companies. These grants do not need to be repaid.
What is venture debt and how is it different from equity funding?
Venture debt is a loan specifically designed for venture-backed startups that may not qualify for traditional bank loans. Unlike equity funding, venture debt does not dilute your ownership significantly. Lenders may require warrants (typically 0.5% to 2% equity) along with interest payments. Venture debt is usually raised alongside or between equity rounds to extend runway without additional dilution.
What is the MUDRA loan scheme?
Pradhan Mantri MUDRA Yojana provides loans up to Rs. 10 lakhs to micro and small enterprises through banks, NBFCs, and MFIs. It has three categories: Shishu (up to Rs. 50,000), Kishore (Rs. 50,000 to Rs. 5 lakhs), and Tarun (Rs. 5 lakhs to Rs. 10 lakhs). No collateral is required, and interest rates are competitive. The scheme is available for manufacturing, trading, and service sector businesses.
What is the CGTMSE scheme?
The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) provides collateral-free loans up to Rs. 5 crores to MSMEs through partner banks and financial institutions. The government provides a credit guarantee, eliminating the need for personal collateral. The guarantee covers up to 85% of the loan amount for micro enterprises and 75% for others. This makes bank lending accessible to startups without significant assets.
Can I raise funds through crowdfunding in India?
Yes, certain types of crowdfunding are legal in India. Reward-based crowdfunding (offering products or perks in return for contributions) through platforms like Ketto, Milaap, and Wishberry is allowed. Donation-based crowdfunding is also legal. However, equity crowdfunding is not regulated in India yet, and SEBI has not approved any equity crowdfunding platforms. Securities-based crowdfunding without SEBI approval is illegal.
What is the Startup India Seed Fund Scheme?
The Startup India Seed Fund Scheme (SISFS) provides financial assistance to startups for proof of concept, prototype development, product trials, and market entry. Grants of up to Rs. 20 lakhs are available for proof of concept, and loans/investments of up to Rs. 50 lakhs for market entry. The fund operates through selected incubators across India. Startups must be DPIIT-recognized and not older than 2 years at the time of application.
What is invoice financing?
Invoice financing (also called invoice discounting or factoring) allows businesses to borrow money against their unpaid invoices. A financing company advances 80% to 90% of the invoice value upfront and charges a fee (1% to 3% per month). When the customer pays the invoice, you receive the remaining balance minus the fees. This is useful for B2B businesses with long payment cycles, as it improves cash flow without equity dilution.
How do convertible notes work?
Convertible notes are short-term debt instruments that convert into equity at a future fundraising round, usually at a discount (10% to 20%) to the valuation set by the next investor. While they eventually convert to equity, they allow you to raise capital quickly without setting a valuation. They are technically dilutive upon conversion but provide flexibility in the early stages and are simpler than priced equity rounds.
What is the Stand-Up India scheme?
Stand-Up India provides bank loans between Rs. 10 lakhs and Rs. 1 crore to SC/ST and women entrepreneurs for setting up greenfield enterprises in manufacturing, services, or trading. Each bank branch must give at least one loan to an SC/ST borrower and one to a woman borrower. The loan is repayable over 7 years with a moratorium period of up to 18 months. Composite loans covering both term loan and working capital are available.
Can I use customer advances as a funding source?
Yes, customer advances and pre-orders are an excellent non-dilutive funding source. If your product or service has strong demand, you can collect payment upfront before delivery. This is common in SaaS (annual subscriptions paid upfront), manufacturing (advance orders), consulting (retainer fees), and e-commerce (pre-orders). Customer advances validate demand while providing working capital.
What are the eligibility criteria for government startup grants?
Most government grants require: DPIIT recognition as a startup (obtain through Startup India registration), incorporation as a company or LLP (typically not for sole proprietorships), innovative element in the business model or technology, willingness to work through incubators (for seed fund scheme), focus areas aligned with the scheme (technology, social impact, etc.), and the startup should not have received more than Rs. 10 lakhs of monetary support previously.
What is SIDBI's role in startup funding?
SIDBI (Small Industries Development Bank of India) operates multiple funding programs for startups and SMEs: Fund of Funds for Startups (FFS) that invests in SEBI-registered AIFs, SIDBI Make in India Soft Loan Fund (SMILE), direct lending to MSMEs at competitive rates, and refinancing schemes for banks lending to MSMEs. SIDBI also operates the CGTMSE scheme for collateral-free lending.
What is the difference between a term loan and working capital loan?
A term loan provides a lump sum for specific purposes (equipment purchase, expansion, setup costs) and is repaid in fixed monthly installments over 1 to 10 years. A working capital loan provides revolving credit for day-to-day operations (inventory, salaries, rent) and can be drawn down and repaid as needed. Most startups need both: term loans for capital expenditure and working capital for operations.
Can I get a bank loan for my startup?
Yes, banks offer loans to startups through government-backed schemes like MUDRA, CGTMSE, and PMEGP. Traditional bank loans may require collateral, business track record, and profitability. Government schemes reduce these barriers with credit guarantees and subsidized interest rates. Having a solid business plan, GST registration, proper accounting records, and a good credit score significantly improves approval chances.
What is the PMEGP scheme?
The Prime Minister's Employment Generation Programme (PMEGP) provides margin money subsidy of 15% to 35% on project costs up to Rs. 50 lakhs for manufacturing and Rs. 20 lakhs for service enterprises. The subsidy does not need to be repaid. The remaining amount is funded through bank loans. PMEGP is implemented through KVIC, state KVIBs, and DICs. Applicants must be above 18 years old, and the project must be new.
What is angel tax and how does it affect fundraising?
Section 56(2)(viib) of the Income Tax Act (commonly called 'angel tax') taxes the premium received on shares when a closely-held company issues shares above fair market value to resident investors. This premium is treated as income of the company. However, DPIIT-recognized startups are exempt from angel tax for investments up to Rs. 25 crores (aggregate from share premium). This exemption makes it important to get Startup India recognition.
How does bootstrapping work as a funding strategy?
Bootstrapping means funding your business entirely from personal savings, revenue, and reinvested profits without external investment. Advantages include retaining 100% ownership and full decision-making control. Successful bootstrapping requires lean operations, early revenue generation, careful cash management, and disciplined spending. Many successful companies like Zerodha, Zoho, and Freshworks bootstrapped in their early stages before raising external capital.
What are incubator and accelerator funding programs?
Incubators and accelerators provide funding, mentorship, workspace, and network access to early-stage startups. Some offer grants (non-dilutive), while others take a small equity stake (typically 2% to 10%). Notable programs in India include T-Hub, NSRCEL (IIM Bangalore), IIT incubators, Atal Incubation Centres, and state government-backed incubators. Many also help startups access government grants and connect with investors.
What is trade credit?
Trade credit is a B2B arrangement where suppliers allow you to pay for goods or services after delivery, typically within 30 to 90 days. This effectively provides interest-free short-term financing. Building good relationships with suppliers and maintaining timely payments can help you negotiate longer credit terms, providing working capital without borrowing or dilution.
Can I raise funds through corporate partnerships?
Yes, strategic corporate partnerships can provide non-dilutive funding through licensing agreements (your technology, their distribution), joint development agreements (shared R&D costs), white-label arrangements (building products for larger companies), strategic customer commitments (long-term contracts with advance payments), and corporate venture programs (some provide grants or non-equity support). These partnerships provide capital while also validating your product.
What is the National Small Industries Corporation (NSIC) support?
NSIC provides multiple support mechanisms for MSMEs: raw material assistance (procurement of raw materials at competitive rates), marketing assistance (participation in government tenders and exhibitions), technology support (incubation centres and technology transfer), credit support (facilitating bank credit), and performance and credit rating scheme (subsidized credit rating to improve loan access).
What is equipment leasing?
Equipment leasing allows you to use expensive equipment without purchasing it outright. You pay monthly lease rentals instead of the full purchase price. At the end of the lease term, you can purchase the equipment, renew the lease, or return it. Leasing preserves your cash for operations, the lease payments are tax-deductible, and you avoid the risk of equipment obsolescence. This is particularly useful for manufacturing, healthcare, and technology startups.
How do I choose between debt and equity funding?
Choose debt (non-dilutive) when: you have predictable revenue to service repayments, the business is capital-efficient, you want to retain full ownership, and the cost of debt is lower than the cost of equity. Choose equity when: the business is pre-revenue or needs significant capital to scale, you cannot service debt payments, you need strategic value (network, expertise) from investors, and the business model requires high upfront investment with delayed returns.
What documentation do I need for a startup loan?
Typical documentation includes: business plan with financial projections, company registration certificate and MOA/AOA, GST registration certificate, bank statements (last 6 to 12 months), income tax returns (last 2 to 3 years if available), audited financial statements, KYC documents of directors, project report detailing the use of funds, and collateral documents (if applicable). Startup India recognition certificate is beneficial for government schemes.
What is the interest rate on startup loans in India?
Interest rates vary by scheme: MUDRA loans range from 7% to 12%, CGTMSE-backed loans from 8% to 14%, Stand-Up India loans at base rate plus 3%, PMEGP loans at bank prime lending rate, and venture debt typically 12% to 18%. Government-backed schemes offer lower rates due to credit guarantees. Individual rates depend on the borrower's profile, business viability, and the lending institution.
Can I raise funds from NRIs without giving equity?
Yes, NRIs can provide loans to Indian companies under the External Commercial Borrowing (ECB) guidelines or through NRE/NRO accounts. The interest rate must be within RBI-prescribed limits (Benchmark Rate plus 450 basis points for ECBs). The loan must be reported to RBI, and the company must comply with FEMA regulations. This provides non-dilutive capital while leveraging the NRI's interest in the Indian market.
What are the tax benefits of different funding sources?
Tax implications vary: interest on business loans is tax-deductible as a business expense (reducing taxable profit), government grants may or may not be taxable depending on the nature and scheme, equity investment is not income for the company (except angel tax on premium above FMV), revenue-based financing payments are typically structured as revenue share (deductible), and lease rentals are deductible as business expenses.
How can I improve my chances of getting a startup loan approved?
Improve approval chances by: maintaining a good personal credit score (750+), having clean financial records and proper accounting, getting MSME/Udyam registration and Startup India recognition, preparing a detailed business plan with realistic projections, showing existing revenue or strong traction, applying through the right scheme (CGTMSE for collateral-free), and approaching a bank where you have an existing relationship.
What is the Fund of Funds for Startups (FFS)?
The Fund of Funds for Startups is a Rs. 10,000 crore corpus managed by SIDBI under the Startup India initiative. It does not invest directly in startups but invests in SEBI-registered Alternative Investment Funds (AIFs/venture capital funds), which then invest in startups. This increases the total capital available to the Indian startup ecosystem. While the end investment is equity-based, the FFS has catalyzed the creation of numerous VC funds in India.
Can I raise funds through government tenders and contracts?
Government contracts provide significant revenue without equity dilution. The Government e-Marketplace (GeM) platform allows MSMEs and startups to sell products and services to government departments. DPIIT-recognized startups get relaxed eligibility criteria for government tenders (no requirement for prior turnover or experience). Public sector procurement must allocate at least 25% of purchases to MSMEs, with a sub-target of 4% from SC/ST-owned enterprises.
What non-dilutive options are available for deep-tech startups?
Deep-tech startups can access: DST (Department of Science and Technology) grants for research, NIDHI (National Initiative for Developing and Harnessing Innovations) programs, BIRAC grants for biotech (up to Rs. 50 lakhs), DRDO iDEX challenges for defence tech, MeitY funding for electronics and IT, ISRO challenges for space tech, and international grants like the Global Innovation Fund. These research grants are specifically designed for technology development and do not require equity.
What is a line of credit and how can startups use it?
A line of credit is a pre-approved borrowing limit that you can draw from as needed and repay at your convenience (within the repayment terms). Unlike a term loan, you only pay interest on the amount you actually use. This is ideal for managing uneven cash flows, seasonal businesses, and unexpected expenses. Banks and NBFCs offer lines of credit to businesses with established banking relationships and regular transactions.
How do I build a funding strategy that combines multiple non-dilutive sources?
A smart non-dilutive funding strategy layers multiple sources: use government grants for R&D and proof of concept, customer advances and pre-orders for initial working capital, MUDRA/CGTMSE loans for setup costs and equipment, revenue-based financing for growth capital once you have recurring revenue, trade credit from suppliers for inventory, and venture debt to extend runway between growth milestones. Each source serves a specific purpose and collectively reduces or eliminates the need for equity dilution.
