Debt vs Equity: When to Use Each
Written by Harry Prabandham
Curated by Rubric Financial
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Equity Financing
- Equity gives up ownership in exchange for capital with no repayment obligation. It is best suited for high-growth, high-risk companies where outcomes are binary.
- Dilution is the primary cost: a $2M seed round on a $10M post-money valuation dilutes founders by 20%, and each subsequent round compounds the dilution.
- Equity investors (VCs, angels) bring more than capital. Board seats, networks, recruiting help, and operational expertise are part of the value proposition.
- Use equity when you need significant capital to pursue a large market opportunity and the expected returns justify the dilution.
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About the author
Harry PrabandhamFounder & CEO
Founder and CEO of StartupCFO. MBA from Wharton, MS in Computer Science, and decades of experience building and advising venture-backed startups.
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