7 alternatives to venture capital: the non-dilutive toolkit for startups

The 7 best alternatives to venture capital for startups

Quick comparison table

Use this as your dashboard before we dive into details.

‍

Let’s go through each one individually.

1. Revenue-based financing: growth based on your revenue

Bottom line: You get upfront capital, then repay it as a percentage of your future revenue until a pre-agreed cap is reached. No fixed term, no equity, no personal guarantees in most cases.

How it works

• You raise, say, €500K.
• You agree to repay 6-10% of monthly revenue.
• Repayments continue until you hit a cap, for example 1.4-1.8x the original amount.

If revenue grows faster than expected, you repay faster and total time to repay shrinks. If revenue slows, your payments shrink too. Global RBF is still small compared to VC, but growing fast. One market report expects revenue-based financing to exceed roughly $68B in 2029.

When it makes sense

• You have predictable, recurring revenue (SaaS, subscriptions, payments, usage).
• Your gross margins are strong so you can afford revenue share payments.
• You want to fund growth marketing, sales, or product work that has a clear payback.

Pros

• It's non-dilutive.
• Repayments flex with performance, which reduces default risk.
• Typically quicker and more data driven than a bank loan.

Cons

• Effective cost of capital can be higher than a vanilla term loan if you grow very fast.
• Not ideal if your revenue is seasonal or volatile with deep troughs.

If you are new to RBF, re:cap’s guide to revenue-based financing is a good deep dive.

2. Venture debt: extend runway without another equity round

Bottom line: Venture debt is a term loan for VC-backed companies. You keep your existing cap table, add leverage, and can extend your runway by 6-18 months or fund growth.

How it works

• Fixed loan amount, interest rate, and maturity, usually 12-36 months.
• Often includes covenants (minimum cash, revenue thresholds) and sometimes small equity warrants.
• Lender underwrites both your company and its VC backing.

Venture debt has become a meaningful part of the startup funding mix and saw record deployment in 2024 in some markets, despite broader VC volatility.

When it makes sense

• You already raised a priced VC round and your metrics are solid.
• You want to push the next equity round to hit better milestones and valuation.
• You have a clear plan for where the capital goes and how it repays.

Pros

• Cheaper than raising the same amount in equity.
• Helps you avoid a "down round" or overly dilutive bridge.
• Lenders can be supportive long-term partners.

Cons

• Breaching covenants can trigger painful renegotiations or early repayment.
• Warrants still create some dilution (Equity kicker).
• You must be ready to service debt from operating cash flow.

To get a feel for providers and terms, you can compare offers from specialist lenders or from fintech platforms like top debt funding providers for SaaS and tech.

3. Flexible and revolving credit lines: tailored to your needs

Bottom line: A revolving credit line is like a company overdraft. You get a limit, draw when needed, and pay interest only on what you use.

How it works

• Lender sets a limit, for example 1-3x monthly recurring revenue.
• You draw money to cover timing gaps: payroll, VAT, suppliers.
• You repay once customer cash hits your accounts.

This can come from banks, but increasingly from fintech lenders that integrate directly with your bank data and accounting.

When it makes sense

• Your business is healthy but cash flow is lumpy.
• You have big upfront costs (onboarding, hardware, marketing) but revenue comes later.
• You need an "always-on" buffer, not a one-off lump sum.

Pros

• Maximum flexibility.
• You only pay for what you use.
• Perfect for working capital, not strategic bets.

Cons

• There may be standby or commitment fees even if you do not draw.
• Interest rates can be higher than classic term loans.
• Limits may feel small compared to your ambitions.

How re:cap helps

With re:cap, you see all bank accounts, cash flows, and cash flow visibility in one place. That makes it much easier to size a facility, negotiate limits, and avoid over-borrowing. Rather than guessing, you can point to your liquidity plan for startups and show lenders exactly how and when you will repay.

4. Customer financing: let clients co-fund your roadmap

Bottom line: Your customers can be your investors. They prepay, commit to multi-year deals, or co-fund product development that solves their problem first.

Variants that work well

• Annual or multi-year prepayments for a discount.
• Implementation and setup fees that cover onboarding costs.
• Design partnerships where a key customer co-funds a new module.

When it makes sense

• You serve mid-market or enterprise clients with budget authority.
• Your product is mission-critical enough that they accept prepaying.
• You can bundle services and commitments into contracts without damaging pricing long term.

Pros

• No dilution, no interest. It is revenue.
• Validates demand before you over-invest.
• Deepens strategic relationships with anchor customers.

Cons

• Over-reliance on a few large customers can increase concentration risk.
• You may end up with a roadmap skewed to one client’s needs.
• Large prepayments demand strong cash management so you do not burn through the money before delivering.

5. Grants & innovation subsidies: "free" money with strings attached

Bottom line: Grants and subsidies are non-dilutive public funding, usually for R&D or innovation. They are painful administratively but incredibly powerful if you qualify.

Typical sources

• National or regional innovation agencies
• EU programs (e.g. EIC)
• Industry-specific funds (climate, health, mobility)

When it makes sense

• You are doing real R&D or deep tech, not just a new CRM feature.
• Your team can handle heavier paperwork and reporting.
• You have enough runway to wait for a slow process.

Pros

• Fully non-dilutive.
• Can de-risk ambitious long-term projects.
• Signals quality to later investors and lenders.

Cons

• Long cycles, competitive selection.
• Strict use-of-funds rules.
• Requires rigorous planning, documentation, and long-term financial planning.

6. Bootstrapping & profitability-first growth

Bottom line: The oldest alternative to VC: build a business that funds itself. Reach profitability early, then reinvest your own cash.

What this looks like in practice

• You raise prices and un-discount aggressively.
• You focus on segments that pay now and pay well.
• You defer speculative projects and build only what improves margin or retention.

In a world where investors push for efficient growth, this is not just "lifestyle". It is a very rational strategy. Many founders now deliberately plan for profitability within 18-24 months, then decide later if they want additional capital at much better terms.

Pros

• Zero dilution, zero debt.
• Absolute control over roadmap, team, and exit.
• Strong negotiating position if you ever do raise.

Cons

• Slower expansion, especially in winner-takes-most markets.
• Requires disciplined cash management and liquidity planning.
• Emotionally harder: you cannot hide operational problems behind "growth".

7. Angels & operator capital: equity, but not "classic VC"

Bottom line: Not all equity is VC. Experienced angels and operator funds can provide smaller, faster, and less "institutional" rounds. Terms are often cleaner, boards simpler, and expectations more aligned.

When it makes sense

• You are pre-revenue or pre-PMF and cannot sensibly take on debt.
• You want access to operator knowledge more than a brand-name fund.
• You are raising a small, focused round to hit clear validation milestones.

Pros

• Faster process, fewer stakeholders.
• Access to a network of people who have actually built companies.
• Can be structured as simple notes or common equity, not complex preferred stacks.

Cons

• Still dilutive; ownership goes down.
• Cap table can get messy if you accept too many small cheques.
• Not a replacement for serious institutional capital if you truly need hundreds of millions.

When does each VC alternative make sense?

Use this stage-by-stage view as a sanity check.

‍

How to qualify for VC alternatives

To access alternative funding, you must speak the language of reliability, predictability, and safety. Lenders need assurance you can repay the capital plus interest.

Here are the prerequisites most debt providers look for:

• Proven Product-Market Fit (PMF): You must be scaling an established product, not pivoting.
• Minimum revenue threshold: Typically, a certain amount of annual recurring revenue (ARR) is the starting point, signaling a functional revenue engine.
• Stable and predictable revenue: Low customer churn, diversified customer base (not reliant on 1-2 clients), and long-term contracts are essential.
• Sufficient runway: You should have at least 6-12 months of runway already. Lenders are eager to fund growth, not desperation.
• Ability to repay: Your gross margins and burn rate must demonstrate you can comfortably service the debt payments without harming day-to-day operations.

How to actually choose: a simple evaluation checklist

Take your top two or three alternatives and score them honestly.

1. Can we model repayments inside our liquidity plan?
   
   1. If you cannot show how the money repays inside a 12-36 month liquidity plan, you are guessing.
2. What is the true cost of capital?
   
   1. For RBF: total cap multiple and expected payback period.
   2. For debt: interest, fees, warrants, covenants.
   3. For equity: dilution at your realistic valuation, not your dream one.
3. What happens in a bad-case scenario?
   
   1. Can you still service debt if growth is 50% of plan?
   2. Does a customer prepayment create dangerous dependency?
4. What does this do to control and optionality?
   
   1. Who gets board seats, vetoes, or covenants?
   2. Does this round paint you into a corner for future funding?
5. What does this signal to future investors and lenders?
   
   1. Clean, well-structured non-dilutive funding is usually a positive signal.
   2. Crowded, messy caps tables and expensive “rescue debt” are not.

10 questions to ask any alternative provider

When comparing offers, don't just look at the headline interest rate. Drill down into the true cost and the strings attached.

1. What is the full cost of capital? (Include interest, one-off fees, and warrants/equity kickers to calculate the true APR or factor rate).
2. What covenants, triggers, or default conditions apply? (Identify minimum cash balance, MRR targets, or other performance requirements).
3. Is there an equity kicker like warrants? (Ask about the percentage and the conversion price).
4. How flexible are repayments? (Can they adjust with revenue, as in RBF, or are they fixed?).
5. Can I prepay or refinance early? (Ask about penalties or fees for early exit).
6. What advance rate or credit limit will you provide? (How much of your MRR/ARR can you actually draw?).
7. What is the term length and repayment schedule? (Clarify interest-only periods and balloon payments).
8. What administrative burden applies? (Check reporting frequency and any requirement for board observers).
9. How long will funding take? (From term sheet signing to cash in the bank).
10. What is your track record with companies in a downturn? (Ask for references who have hit slower growth).

Conclusion: VC alternatives

Debt funding and strategic non-VC options have matured into powerful, founders-first growth levers. You no longer have to rely solely on the traditional equity path.

By strategically combining Revenue-Based Financing, Venture Debt, Flexible Credit Lines, and other specialized alternatives, founders can:

• Extend Runway and hit better metrics for the next funding round.
• Keep the Cap Table Lean by minimizing dilution.
• Strengthen their Negotiating Position with VC firms.

The key is preparation: secure financing when your business is strong, your revenues are predictable, and you have a clear plan to use the capital to generate a higher return than its cost. Choose the funding that works for you, not against you.

Q&A: Alternatives to venture capital

1. What makes a company "high-risk" for traditional banks but attractive to specialized debt providers?

Traditional banks assess risk based on the ability to liquidate hard assets (collateral) if the borrower defaults. SaaS and tech companies are "asset-light," meaning their primary value lies in intangible assets (intellectual property, code, customer contracts). This is a mismatch for traditional lenders.

Specialized debt providers (like RBF and venture debt firms) find these companies attractive because they underwrite risk based on predictable, contractual recurring revenue (MRR/ARR) and low customer churn. This stability acts as a form of "financial collateral," assuring the lender of a predictable cash flow source for repayment.

2. How exactly do Warrants in Venture Debt increase dilution, even though the loan is non-dilutive upfront?

Venture debt is non-dilutive at the time of the loan because you are borrowing money, not selling shares. However, Warrants (the "equity kicker") give the lender the right to buy a specified number of shares at a low, pre-set price (the strike price) at a later date, typically upon the next equity round or exit.

When the lender exercises these warrants, new shares are created, increasing the total number of outstanding shares and thus diluting the ownership percentage of all existing shareholders, including the founders and previous VC investors. This makes the debt minimally dilutive in the long run.

3. Why is a company's Cash Runway so critical for securing debt funding?

Lenders want to see that you are using debt to accelerate growth from a position of strength, not to prevent a collapse.

• Risk Mitigation: A long runway (6-12+ months) assures the lender that the company has enough cash on hand to comfortably make interest and principal payments for the duration of the loan without needing to immediately find new capital.
• Signaling: It signals to the lender that the company is financially disciplined and has sufficient internal capital (often from VC equity) to continue operating even if the growth plan funded by the debt is delayed.

4. What is the fundamental difference in cost structure between RBF and a Term Loan?