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Minority founders often find it challenging to secure traditional venture capital funding — this is why non-dilutive funding can help
It’s no secret that the tech world is dominated by white men who often come from privileged backgrounds. If you look at the founders and owners of the most successful tech companies, you’d be hard-pressed to find a female, black, or brown face among them.
While launching a company and securing venture capital are challenging for anyone, this is significantly more challenging for minorities. They’ve been facing bias issues since childhood. These obstacles have most likely extended into adulthood, even as entrepreneurs.
Did you know that only 8% of venture-backed companies have female founders, while only 1% of founders are Black? Considering the American population is roughly 50% female and 11% Black, this low figure is neither great nor encouraging. For Hispanic business owners, the funding statistics are too low that it is extremely challenging to quantify.
Venture capital firms definitely have an opportunity to increase funding for more minority-led startups. However, this is easier said than done. It may take decades to unlearn subconscious bias that’s based on race, skin color, and gender. Fortunately, minority founders may find more success if they look toward other forms of funding, one of which is non dilutive funding.
How Is Non-dilutive Funding Different?
Non-dilutive funding is a type of alternative funding that doesn’t require giving up any equity or ownership of your company. Instead, it is either not expected to be repaid at all or is repaid indirectly through portions of the company’s future profits. Non-dilutive funding can come from various sources, including crowdfunding, tax credits, grants, bootstrapping, and capital funding partners.
There are several benefits of non-dilutive funding, including accessibility for founders who don’t have the connections, credit history, or experience to secure traditional VC funding. However, the most attractive aspect for most founders is that you maintain 100% control over your company. This can be incredibly important for those who want to keep their company’s vision intact.
Additionally, non-dilutive funding is often given with the intention of helping a company achieve short-term success. This differs from venture capital, which often comes with the expectation that the investor will have a say in how the company is run and what decisions are made.
Non-dilutive funding also comes with fewer strings attached overall. You’re not forced to listen to investors on what your company should do or feel pressure to meet expectations of exponential growth. Instead, non-dilutive funding is often given in good faith with the presumption that you know what’s best for your company. This makes it ideal for companies who want to take their time growing or exploring different, unconventional avenues of growth.
Instead of getting tied up in requirements and promises, the only condition for non-dilutive funding is loan repayment — if you even get it in the form of a loan.
What Minority Founders Should Know To Be Successful
For minority founders, non-dilutive funding can be an extremely appealing option. Before jumping into it, though, there are a few things you should know about to ensure you’re successful in your funding journey and beyond.
First and foremost, it’s essential to find the right partner. Not all non-dilutive funding sources are created equal. It’s important to find a funding partner that supports minorities and is willing to build an ongoing relationship with you and your company. A respected and established company like Novel Capital will provide you with funding as well as mentorship and resources to help you grow — something that is often more important than the funding itself.
Another essential component to finding success as a minority-led startup is building a supportive network. This should include other minority founders who understand what you’re going through and industry experts who are willing to share their knowledge and expertise.
The more people you have rooting for your success, the better. When you help other minorities, you help yourself. The more minorities there are in the business, the easier it will be for you to build your company—especially when you have personal, positive relationships with these other founders. All companies hit rough spots at every stage of growth, and when you have a network of people who are willing to help you, you drastically reduce your chances of failing.
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