Funding is one of the most critical decisions a founder or CFO will make. The type of capital you raise affects not just your balance sheet, but your ownership, control, and long-term valuation. Yet, in the rush to extend runways or fuel growth, many businesses jump into a raise without fully considering the trade-offs. Understanding the difference between dilutive vs. non-dilutive funding is key to building a flexible, efficient capital strategy, especially for innovation-driven companies eligible for the R&D Tax Incentive.
What is Dilutive Funding?
Dilutive funding involves raising capital by issuing new equity, typically through angel investors, venture capital, or strategic investors. In exchange for capital, the company gives away a percentage of ownership.
This form of funding often comes with more than just money. Many investors bring strategic advice, industry networks, and added credibility. It can be a strong option for companies looking to scale quickly, pursue new markets, or make long-term investments in infrastructure. Because equity doesn’t require repayment, it also reduces short-term financial pressure.
However, it comes with trade-offs. Issuing new shares dilutes your ownership and reduces control. It also introduces external stakeholders who may want influence over decisions, timelines, and business direction. Subsequent funding rounds can further erode ownership, especially if done under tight runway conditions or at weaker valuations. For many founders, the long-term cost of equity capital becomes clearer in hindsight.
It’s also important to consider timing. Raising equity in a weak market or during a period of underperformance can lead to unfavourable terms. In those moments, even promising companies may end up raising less capital for a higher percentage of equity than originally planned. That’s why some founders opt to delay equity raises until they’ve hit the next milestone or revenue marker, provided they have the cash flow to wait.
While equity finance is one of the most common types of financing for startups, it’s just one of several dilutive funding options. Each comes with unique trade-offs depending on your stage, growth trajectory, and investor expectations.
What is Non-Dilutive Funding?
Non-dilutive funding refers to capital raised without giving up equity or ownership. This includes mechanisms such as grants, government rebates, loans, and more recently, tools like R&D Finance, which enables companies to borrow against their anticipated R&D Tax Incentive rebate.
The main advantage is straightforward: you retain full control. Non-dilutive capital allows founders to access funds while preserving their ownership and board autonomy. It’s particularly useful for short- to medium-term needs, whether to fund operations, bridge working capital, or accelerate R&D.
Of course, not all non-dilutive options are equal. Grants are competitive and can take time. Loans require repayment and come with terms that need to be assessed. And eligibility criteria may limit which businesses can access each source. But for those that qualify, non-dilutive funding offers flexibility without sacrificing the company’s long-term equity position.
It also supports more iterative financial planning. Non-dilutive tools can help businesses fund one or two quarters of development without the administrative or strategic burden of a full equity round. And when used alongside other capital tools, they can strengthen your position heading into negotiations, whether with investors, acquirers, or major partners.
Venture debt, for instance, is another non-dilutive source of capital that may appeal to later-stage businesses with revenue traction. However, unlike R&D Finance, it typically requires covenant agreements and is often structured as a complement to equity, not a replacement for it.
Why This Matters to Innovation-Focused Businesses
Companies investing in product development, technology, or scientific advancement often face long development cycles. You’re building for future value, but need capital now.
The R&D Tax Incentive exists to support that. It delivers a cash rebate on eligible year-to-date R&D activities, but it typically arrives after the financial year closes and your claim is processed. That creates a lag, months where you’re carrying costs without the rebate in hand.
That’s where R&D Finance fits in.
Many innovative businesses underestimate the impact of timing on capital efficiency. If you’re building something complex, like medtech, AI systems, hardware, or clean energy solutions—you’re likely pouring cash into R&D well before any commercial return. R&D Finance helps close that gap by converting already-incurred spend into working capital. It transforms a passive rebate into an active funding tool.
R&D Finance: A Smarter Non-Dilutive Option
R&D Finance allows you to unlock funding against your accrued R&D rebate before your claim is finalised. It’s fast, flexible, and non-dilutive. You’re essentially drawing forward a government-backed asset your business has already earned.
At Rocking Horse, we fund only against incurred, eligible R&D spend, no projections, no guesswork. Our process is transparent and efficient, designed for innovation-driven companies who want capital now without giving up control later.
R&D Finance helps you extend runway between raises, bridge payroll or fund critical hires, avoid equity rounds made under pressure, and time your next raise for stronger terms. For founders and CFOs who want to protect equity and move strategically, it’s a compelling alternative to giving away ownership to fund short-term costs.
The flexibility of this model is also key. Unlike some funding sources that dictate how the money must be used, R&D Finance allows you to direct the capital where it’s most valuable, whether that’s extending your engineering runway, investing in customer acquisition, or securing IP. You’re in control of the timing, structure, and deployment.
It’s one of the most underused financing options among eligible startups, despite being purpose-built for innovation-heavy sectors.
When Should You Use Each?
There’s no one-size-fits-all approach. Often, the smartest capital strategies combine both types of funding.
Dilutive funding is best suited for larger-scale investments, like market expansion, infrastructure, or long-term strategic hires, where the capital needed exceeds what non-dilutive sources can typically offer. It also makes sense when investors bring meaningful expertise, partnership opportunities, or help position the business for a future exit.
Non-dilutive funding, on the other hand, works best when you’re looking to protect equity while funding near-term needs. If you’re in the middle of product development, preparing for a raise, or need to bridge a rebate delay, non-dilutive tools like R&D Finance can be an efficient solution. It helps you maintain control, manage dilution strategically, and make capital decisions on your terms, not under pressure.
Founders who layer both approaches often gain the most flexibility. For example, some use non-dilutive capital to maintain momentum through R&D and operations while deliberately holding off on equity until valuations improve. Others use R&D Finance to extend the impact of a recent raise, stretching capital further without going back to market prematurely. In both cases, you’re building leverage and optionality into your funding model.
Whether you’re working with a venture capitalist or managing your own bootstrapped runway, being intentional about your financing options can give your company the stability it needs to make strategic moves, not just reactive ones.
Choosing the Right Capital at the Right Time
Dilutive vs. non-dilutive funding isn’t a binary choice—it’s a strategic balance. The more you understand the cost and implications of each, the better equipped you’ll be to grow on your terms.
If your business is investing in innovation, and you want to turn your future R&D rebate into capital today, R&D Finance could be the bridge you need.
Rocking Horse Group is Australia’s leading non-dilutive funding partner for R&D-active businesses. We provide fast, founder-friendly loans secured against your year-to-date R&D spend—so you can access working capital before your rebate lands. Our process is efficient, transparent, and designed to support strategic decision-making—not slow it down.
Not sure if R&D Finance is right for you? Take a look at who we help to see how R&D-active businesses across tech, life sciences, and advanced manufacturing are using early access to capital to grow with confidence. Or explore our calculator to estimate how much you could unlock now—well before tax time.
Want to see how it might work for your business? Talk to Rocking Horse Group about how R&D Finance fits into your broader funding strategy—so you can fund smarter and grow stronger.