How to Combine Non-Dilutive Funding with Equity

The short answer: Use non-dilutive funding, such as grants, tax credits and certain loans, to pay for specific, eligible work, and use equity for the broader growth that nothing else will finance. Done well, the two reduce dilution and extend runway. Done badly, they create paperwork and conflicts that distract the team.

What non-dilutive funding includes

Non-dilutive funding is money you do not repay with ownership. In Canada this commonly includes federal and provincial grants, research and development tax incentives, innovation programs, and various forms of government-backed or conventional loans. Each has its own eligibility rules, timelines and reporting duties. Some are reimbursements, which means you spend first and recover the cost later.

Match the funding to the use

The most important principle is fit. Grants and credits usually fund defined activities such as research, development or hiring in a program's target area. Equity is better for open-ended needs like sales, go-to-market and general company building. Map your planned spending, mark which parts qualify for non-dilutive support, and pursue only the programs that match real work you intend to do anyway. Chasing money for projects you would not otherwise pursue can pull the company off course.

How to layer the two

• Use non-dilutive funds to stretch each equity round, so you reach milestones sooner or with less dilution.
• Raise equity first or alongside, since some programs expect matching funds from private investors.
• Use equity investors' commitment as evidence when you apply for programs.
• Use a program's approval as a signal of credibility when you pitch investors.

Cautions

Programs take time. Applications, approvals and payments can run slower than a company's cash needs, so never plan around money you have not received. Some programs limit what you can do with intellectual property or require you to keep activity in Canada. Others can affect how later investors view the cap table or the company's obligations. Be open with equity investors about everything you receive and every condition attached.

Tax credits and incentives depend on specific rules, so work with a qualified accountant and lawyer who know the programs, and keep clean records of eligible spending from the start.

Build it into your plan

Treat non-dilutive funding as one part of a capital plan, with owners, deadlines and realistic probabilities, not as a lottery ticket. A short forecast that shows equity, grants, credits and debt together helps you see the real runway and helps investors trust your numbers.

Raising growth capital in Canada?

Launch Capital is a Toronto venture capital firm and family office that provides growth capital to Canadian technology companies. We are operators who have built and exited companies, and we are glad to talk through how equity fits with the rest of your funding. If you are building something real, send us your pitch. It takes two minutes and no deck is required.