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Understanding the ROI of Non-Dilutive Funding: A Guide for Startups

Writer's picture: Shiri YanivShiri Yaniv

For many startups, securing funding without giving away equity can be a game-changer. Non-dilutive funding, primarily in the form of grants, provides financial support for innovation and growth while allowing founders to maintain control over their company. But how exactly does this funding translate into long-term returns, and what should entrepreneurs watch out for?

In this blog, we’ll break down how grants drive return on investment (ROI) for startups, the nuances of repayment structures, and real-world examples of successful grant-funded companies.


What is Non-Dilutive Funding?

Non-dilutive funding refers to financing options that do not require startups to give away equity. The most common sources include:


  • Government Grants – Provided by entities like the EIC AcceleratorIsrael Innovation Authority (IIA), and SBIR (US).

  • Research & Development (R&D) Grants – Often supporting early-stage technology innovation.

  • Corporate and Non-Profit Grants – Offered by foundations or industry bodies to encourage sector growth.


Unlike venture capital (VC) or angel investments, grant funding allows founders to raise money without reducing their ownership stake. This means that any increase in company valuation directly benefits the original shareholders.


ROI of Grants: Long-Term Gains Without Equity Sacrifice

Many startup founders hesitate to pursue grants because they assume non-repayable funding is “too good to be true.” While some grants do require repayment, they differ from traditional loans and investments in key ways:


  1. No Immediate Repayment Burden

  2. Retention of Ownership

  3. De-Risking Future Investment


Grant Repayment: What Founders Need to Know

While non-dilutive, some grants come with repayment structures that founders should carefully review. Common repayment terms include:


  • Revenue-Based Repayment – Some agencies (e.g., Israel Innovation Authority) require companies to repay the grant only if they generate revenue (not profit). Repayment is usually capped at 100-150% of the original grant but can reach up to 300% (BIRD).

  • Milestone-Based Negotiation – Unique to the EIC Accelerator, this structure allows companies to receive €2.5M in non-repayable funding upfront. If the company meets key milestones, it can negotiate for an additional €10M in equity-based investment—but there is no obligation to decide upfront whether to take equity.

  • No Repayment Requirement – Some early-stage or research grants (e.g., ERC grants for academia) do not require any repayment.


Key takeaway: Always read the repayment terms carefully to ensure they align with your company’s financial strategy and long-term goals.


The Role of the Israel Innovation Authority in Non-Dilutive Funding

The Israel Innovation Authority (IIA) plays a crucial role in supporting startups through grants for R&D and scale-up activities. In recent years:


  • In 2022, the IIA allocated approximately ₪670 million (around $188 million USD) in grants to technology startups.

  • The IIA’s programs support companies in sectors like biotech, deep tech, and medical devices, ensuring that startups can conduct high-risk R&D without relying on private investment too early.

  • Key programs include the Pre-Seed Fund and Tnufa (Ignition) Grants, which help startups develop innovative technologies without requiring equity.

  • The IIA also supports scale-up efforts and R&D in industrial settings, ensuring that companies can transition from proof-of-concept to commercial production.

  • Round A Grants: The IIA participates in Series A funding rounds, covering up to 30% (or ₪15 million) of the investment round, helping startups secure the funding they need for growth without excessive dilution.


These grants provide critical support in the early stages, allowing startups to reach proof-of-concept and scale before attracting venture capital.




Final Thoughts: Is Non-Dilutive Funding Right for Your Startup?

Grants offer a unique way to fuel startup growth without giving up equity, but they require careful navigation. Before applying, consider:


  • Can you meet the repayment terms? Review grant agreements carefully.

  • Do you need flexibility? EIC’s staged approach allows you to defer equity decisions.

  • Will non-dilutive funding increase your valuation? Many startups use grants to reach key milestones before raising investment at a higher valuation.


Non-dilutive funding can be a powerful financial tool when used strategically. If you need guidance on identifying or applying for the right grants, let’s talk! 🚀

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