Read this FAQ about how to get non-dilutable funds and where to apply for it. Consider the pros and cons that come with it.
In the world of startup financing, “soft money” typically refers to non-dilutive funding sources that are available to startups through various government programs and tax incentives. Soft money is distinct from “hard money,” which refers to traditional venture capital or angel investment.
Soft money schemes can take many forms, but they generally fall into two categories: government funds and R&D tax returns. Government funds may be available at the national or regional level, and may offer grants or loans to support startups that are working on innovative projects or technologies. R&D tax returns, on the other hand, provide tax incentives to companies that are investing in research and development.
The availability and terms of soft money programs can vary widely depending on the country or region, as well as the specific focus of the program. Some programs may be geared towards supporting startups in certain industries, while others may prioritize startups with a specific social or environmental impact.
For startups, soft money can be an attractive source of funding because it doesn’t require giving up equity in the company. However, the application process for these programs can be competitive and time-consuming, and startups will need to be able to demonstrate that their project or technology is innovative and has the potential for significant impact.
Overall, soft money can be an important source of funding for startups, especially in the early stages of development when traditional investment may be harder to come by. By exploring the various soft money programs available in their region, startups can potentially access additional funding to support their growth and development.
Government funds are a type of soft money program that provides non-dilutive funding to startups working on innovative projects or technologies. These programs are typically administered by national or regional governments and may take various forms, including grants, loans, or tax incentives.
The goal of government funds is to encourage innovation and economic growth by supporting startups that are working on projects with high potential for impact. This funding can be used to cover a wide range of expenses, including research and development, prototyping, and commercialization.
While government funds can be an attractive source of funding for startups, the application process can be competitive and time-consuming. Startups will need to demonstrate that their project or technology meets the criteria for the program, and may need to submit detailed proposals and reports on their progress.
To increase their chances of success, startups may choose to work with consultants or other experts who can help them navigate the application process and develop strong proposals. These consultants typically charge a fee for their services, which can range from 5-10% of the total amount raised.
Overall, government funds can be an important source of non-dilutive funding for startups, but the application process can be challenging. By working with experts and developing strong proposals, startups can increase their chances of accessing this funding to support their growth and development.
R&D tax returns can be a valuable source of funding for startups engaged in research and development. Countries such as the UK, Denmark, and many others offer R&D tax return schemes that allow startups to receive around 20-25% of the cost incurred on R&D development. These returns are usually filed together with the annual statement. While it was easier to get these returns in the past, the rules have become stricter over the years. To see if your startup qualifies for the R&D scheme, consult with your accountant and consider using consultants to help with the application process.