Equity dilution occurs when a company (usually a startup) issues new shares to investors, which in turn decreases equity ownership for existing shareholders. With more shares in the hands of more people, each existing holder owns a smaller or diluted percentage of the business. Just as a drink becomes less concentrated when water is added, so does wealth when ownership is added.
Why Do Startups Dilute Equity?
Equity dilution is incredibly common in the startup world because most entrepreneurs don’t have a lot of cash to start with. Once a startup has taken their product or service to market, they urgently need an injection of cash to grow and scale by investing in things like digital marketing. As a result of this, they typically turn to external investors for cash in exchange for equity. These people are called venture capitalists. Venture capitalists will therefore give a startup the required capital in exchange for a percentage of equity share.
Negative Effects Of Equity Dilution On Startups
While the temptation of raising funds to scale and grow your business is tempting, equity dilution potentially reduces earnings per share and can lead to smaller dividends. Another big downfall is that founders will have to give up some control over decision making and limit the flexibility of the company. The venture capital firm may have its own ideas about how to run your business, which could conflict with yours. Money comes with strings, so you will have to entertain their ideas as well. Typically, the size of their stake could determine how much say they have in shaping your company’s direction.
In order to get the funding from investors, you’ll also need to pass a due diligence process. Venture capital partners screen startups in two stages. Firstly, your technology and business fundamentals are evaluated to determine if the market exists and if the business can be scaled. Then, venture capital partners conduct a more thorough review of your team’s background and the company’s financial and legal position.
So, how are Velocity Juice different from traditional venture capitalists?
Zero-Equity Dilution With Velocity Juice Funding
Here at Velocity Juice, we understand giving away equity is one of the most expensive ways startup businesses raise finance, so unlike venture capitalists, we offer a no-equity dilution funding solution. This allows you to stay in complete control of your business, and you receive flexible finance to achieve your goals and scale faster.
Aside from the financial support, obtaining funding from Velocity Juice can also open up a whole range of valuable resources, guidance and consultation, which just like finance, can be vital to the success of a startup in this early stage.
Working with us means being part of a community of founders and experts, so whatever challenges your business faces, we can connect you with the right people to help.
We can also help to accelerate your marketing efforts through our in-house experts and network. We can provide you with your own dedicated marketing specialist, who will help you maximise the efficiency of your digital marketing spend and maximise your revenues. We can also give you free marketing and branding strategy sessions and will help you track your performance data on a 24-hour basis via our online platform in future.
Applying For Velocity Juice Finance
With roughly 1 in 100 startups that pitch to a particular venture fund are successful, trying to raise finance via venture capitalists is extremely challenging. However, for funding here at Velocity Juice, your business will qualify if you have at least 2 months’ worth of marketing and monthly financial data.
You can apply via our online platform, and the process can take from 24 hours but could be longer, depending on the product you have applied for.
Our Lending Products
We currently have three lending products – the Accelerator, Start-up and Growth product. These products differ in size and pricing and are tailored to different business sizes and needs. Our clients graduate to the next product as they grow. As you progress you will be able to increase your facility size, reduce the cost of capital and unlock more support for your business.
We are Velocity Juice: helping digital-first companies scale faster by offering flexible funding with no equity dilution. For more information about what we do, check out our insights page or get in touch to speak to a friendly member of our team.
Written by Kate, for Velocity Juice.