Raising venture capital helps you grow quickly. Non-dilutive funding, like grants and tax credits, lets you increase your available funding without giving up ownership. In Canada, many high-growth companies use both types of funding. The key is to plan the timing and keep your reporting clear.
It can be tricky to know which types of funding you can combine, when investors care, and where the rules might clash. If you do it right, non-dilutive funding can lower dilution and even make your company more attractive to venture capitalists.
Non-dilutive funding includes grants, refundable tax credits, and contributions. You do not give up shares or board seats for this money. Venture capital means trading some equity for growth capital and advice.
In Canada, these two funding sources often work well together. Most public programs aim to reduce risk for new ideas, while VCs look for companies ready to scale.
Before a VC round
Alongside a VC round
After a VC round
Tools like GrantHub’s eligibility matcher let you check programs by province, industry, and stage in seconds.
SR&ED is the most common non-dilutive funding source combined with venture capital in Canada.
What it is
Why VCs are comfortable with it
Important considerations
Many federal and provincial programs support innovation, hiring, and commercialization. These are often used before or between VC rounds, not instead of equity.
General rules investors care about:
Always tell investors about active or pending applications during VC due diligence.
A common order:
This order shows discipline and keeps early dilution low.
Many programs cap total government help as a percentage of project costs. If you go over that cap, your grant may be reduced.
This is important if you combine:
See also: How to stack grants and loans without violating funding rules
VCs expect:
Messy reporting can slow down future fundraising.
Thinking grants scare off VCs
Most Canadian VCs expect you to use SR&ED and grants. Problems only happen if you hide terms or misunderstand them.
Using grant funds outside approved scopes
Misuse can cause clawbacks, which show up during due diligence.
Overestimating funding timelines
Many programs pay you back after you spend the money. Plan your cash flow carefully.
Not disclosing funding conditions
Always share repayment clauses, IP terms, and reporting requirements with investors early.
Q: Can you raise venture capital while receiving Canadian grants?
Yes. Most Canadian grants and tax credits allow equity investment, but total government assistance caps may apply.
Q: Does SR&ED affect my valuation?
Indirectly. SR&ED improves cash flow and capital efficiency, which can support stronger valuation discussions.
Q: Do VCs count grants as revenue?
No. Grants are usually listed as other income, not operating revenue, and should be separated in your financials.
Q: Should I apply for grants before or after raising VC?
Early-stage grants often make sense before VC. Larger programs may require private matching funds, so they may fit better after you raise.
Combining non-dilutive funding with venture capital is not just about getting more money. It’s about building a sustainable growth plan that keeps your company attractive to investors while preserving as much ownership as possible. By understanding the timing, rules, and expectations, you can avoid common pitfalls and make the most of both funding sources.
Combining non-dilutive funding with venture capital is common for Canadian growth companies. The most important things are to plan your funding sequence and keep your reporting clear.
GrantHub tracks hundreds of active grant programs across Canada to help Canadian businesses. Check which ones match your business and see where they fit in your fundraising timeline.
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