Debt vs Equity — When to Use Each

Equity Financing

• Equity gives up ownership in exchange for capital with no repayment obligation — 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.