What’s The Right Way To Look At Financing Your Startup?

One of the investors in my company described equity as “fuel” for growth and debt as a “retardant” to growth.

I don’t think I agree with him. I think the right answer is more about what’s right for you and your company.

Picture: Depositphotos

There is a better way to look at what’s right for you. I’ll get back to this later. First, let’s look at equity and debt.

There are obvious pros and cons to equity and debt:

Equity:

• The biggest pro for equity is you don’t have any interest to pay and there is no collateral required, but…
• The biggest con is you give up a piece of your company

Debt:

• The biggest pro is you don’t have to give up any equity to get your money, but…
• The biggest con is you have to pay back the interest and the principle, so your burn rate goes up

Whether you give equity or get a loan for your money, you now have to answer to somebody:

It’s true that if you get a loan your lender is not likely to be on your board of directors. However, you will have to give your lender updates on how your company is doing. And…