Non-Dilutive Capital Gains Ground as Equity Funding Tightens in India

Entrepreneur

16-07-2025

As venture funding tightens, founders are increasingly tapping grants, venture debt, and revenue-based financing to extend their runway without giving up ownership
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With equity financing becoming harder to secure in India's cooling startup ecosystem, a growing number of entrepreneurs are turning to non-dilutive capital to fuel their growth while retaining ownership.
Non-dilutive capital, which often includes government grants, revenue-based financing (RBF), venture debt, and corporate-backed programs, does not require founders to part with equity. This form of capital is now gaining momentum as startups look to survive a funding winter and prioritize sustainable, capital-efficient growth.
The trend is particularly pronounced in sectors such as SaaS, D2C, deeptech, and biotech, where alternative funding models offer a critical runway extension without compromising cap tables.
"Non-dilutive capital today is fast, often disbursed in days, unlike equity rounds that can take months," said Eklavya Gupta, CEO & Co-Founder of Recur Club, adding that most founders still associate speed with compromise, but that's not the case anymore.
"A 15-17 per cent IRR loan is significantly less costly than giving away 30-40 per cent equity. But the real unlock is strategic: when used right, modest leverage strengthens your capital structure and enhances shareholder value. Founders who understand this build more resilient and high-ownership companies," says Gupta.
According to Tracxn's H1 2025 report, early-stage startup funding in India declined by 38 per cent year-on-year. Amid this slowdown, startups are increasingly pursuing capital strategies that help them avoid down rounds or over-dilution. Meanwhile, venture debt deployments stood at USD 1.2 billion in 2023, up from USD 900 million in 2022, according to data published in the IVCA-EY India Venture Capital Report 2024.
When it comes to private capital in India, the story is just getting started. "We're still an under-levered economy, and we expect private capital AUM to grow aggressively over the next few years. What's really driving this shift is the changing face of entrepreneurship," said Gupta.
"Direct-to-consumer brands, e-commerce players, AI and tech service companies, and even industrial automation ventures, all need faster and more flexible capital solutions that support growth without diluting ownership. These sectors are asset-light but revenue-strong, making them ideal candidates for structured, non-dilutive credit. Private capital is rising to meet that demand." Recur Club has disbursed INR 3,000 crore in non-dilutive capital so far.
When it comes to state efforts, the Startup India Seed Fund Scheme (SISFS) has disbursed over INR 945 crore across more than 1,000 startups as of June 2025, according to data on the Startup India portal. Other schemes, such as BIRAC's Biotech Ignition Grant (BIG) and NIDHI's PRAYAS and EIR program have supported deeptech and healthtech founders with equity-free grants.
Venture debt providers such as Trifecta Capital, Alteria Capital, and InnoVen Capital have seen continued demand from startups seeking to raise capital between equity rounds or to finance growth without diluting their equity.
Ajay Hattangdi, Managing Partner at Alteria Capital had said that venture debt is evolving beyond just a bridge to being a strategic part of startup capital stacks.
Despite growing interest, access to non-dilutive capital depends heavily on revenue visibility, business model, and sector, and for the providers themselves, regulatory bottlenecks.
Absolutely, and it's part of the terrain. The RBI's evolving digital lending and KYC guidelines, especially around consent frameworks, data transparency, and intermediary roles, have added complexity to how lending products are structured and delivered. These rules are essential for long-term ecosystem trust, but they do slow down the process operationally if you're not built for it.
"Absolutely, and it's part of the terrain. The RBI's evolving digital lending and KYC guidelines, especially around consent frameworks, data transparency, and intermediary roles, have added complexity to how lending products are structured and delivered. These rules are essential for long-term ecosystem trust, but they do slow down the process operationally if you're not built for it," added Gupta.