In the modern business landscape, choosing between equity and debt financing can be a game-changer. CEOs and founders weigh in with their insights on this pivotal decision. The first expert shares how choosing debt helped maintain control, while the last reveals the strategic benefits of equity financing. With 17 unique insights, this article promises a comprehensive exploration.
- Chose Debt to Maintain Control
- Converted Debt to Equity
- Opted for Equity Financing
- Used a Hybrid Financing Approach
- Selected Debt for Full Ownership
- Bootstrapped to Retain Ownership
- Balanced Equity and Debt Financing
- Hybrid Approach for Initial Growth
- Debt Financing for Control
- Strategic Equity for Long-Term Goals
- Performance-Based Debt Financing
- Mixed Financing for Flexibility
- Equity for Financial Stability
- Combined Equity and Debt Financing
- Equity for Strategic Partnerships
- Equity Financing for Strategic Benefits
- Debt Financing for Creative Freedom
Chose Debt to Maintain Control
Deciding between equity and debt financing was one of the hardest decisions of my career. I was at this crossroads about 14 months ago, and I spent weeks weighing the pros and cons multiple times, trying to determine the best path forward for our growth and sustainability.
Ultimately, I chose debt financing, and that decision was driven primarily by my desire to maintain control over the company’s destiny. Having spent years as a bootstrapped founder, I deeply valued the autonomy and ownership that came with it. While we needed capital to launch our app last year, I wasn’t prepared to exchange equity and relinquish any control. Debt financing allowed us to secure the necessary funds without diluting our ownership or answering to external investors.
Another crucial factor was our company’s financial health. We were already a profitable business, which made debt a viable and less risky option. Committing to debt payments felt more manageable and aligned with our cash flow, as opposed to sharing future profits with equity partners. This approach gave me greater peace of mind, knowing that we retained full ownership and control over our strategic decisions.
This decision has proven to be the best of my life. We secured just enough debt capital to successfully launch our app and have since implemented stringent expense management to repay the principal swiftly. As a result, I still own 100% of the business and operate without external obligations. Choosing debt over equity has empowered us to grow on our terms, preserving the core vision and integrity of our company while ensuring long-term success.
Brett Ungashick, CEO, OutSail
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Converted Debt to Equity
Through engaging in a terribly expensive MCA (Merchant Cash Advance) loan that nearly put us out of our then-still-growing startup, given that the rates attached to the loan, cleverly hidden in the maze of numbers they created when getting us to sign up and not having been fully understood by us non-financial geeks at the time, turned out to be somewhere near a 25% (annual) interest rate, we’d make money as a business, get happy, and then end up paying all, or nearly all of it, to serving our debt. It quickly became abundantly clear that this was something that needed to be addressed, and fast!
Thanks to lots of calls, running around, and tapping into everyone in my network that had access to someone in the investment industry, we lucked out with our first-ever funding round! With a lot of learning, financial maneuvering, and restructuring, we were able to convert the debt into equity; short of which, given the level of payment we were making to the MCA lender, we’d soon have either fully stagnated as a business/leveled out our growth trajectory, or, worse, declined into the abyss of non-existence.
Thankfully, once we saw the writing on the wall, we opted to happily give away a healthy chunk of our equity in exchange for a cash injection to the business, which not only took care of the MCA but also helped us gain funds to grow. Everyone since has seen a huge dividend from it: both our shareholders and our founding team. Nothing like leveraging equity when you’re a young, growing, up-and-coming startup to escape the debt trap!
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Opted for Equity Financing
When we were starting, the question of equity versus debt financing was a big one. I’ve seen this dilemma play out with many of the startups we’ve worked with, and it’s never an easy decision. For us, we looked at a few key factors. First, we considered our growth trajectory. We knew we wanted to scale quickly, and equity-financing often allows for that rapid growth. Then, we thought about control. With debt, you maintain more control, but with equity, you bring in partners who can offer valuable expertise and networks.
We also looked at our cash-flow projections. Debt requires regular repayments, which can be tough for a young company. Equity, on the other hand, doesn’t have that immediate pressure. We ran the numbers, considering different scenarios, and even brought in a financial advisor to give us an outside perspective.
In the end, we chose to go the equity route. It aligned better with our growth plans and allowed us to bring in investors who could offer more than just money. They brought industry connections and startup experience that proved invaluable as we grew. Plus, it gave us more flexibility in our early stages when cash flow was tight. Looking back, I think it was the right call for us, but I always remind founders that this decision is highly individual to each company’s situation and goals.
Niclas Schlopsna, Managing Consultant and CEO, spectup
Used a Hybrid Financing Approach
When considering financing options, we carefully weighed the long-term impact of both equity and debt on the business. Equity financing offered us access to growth capital without the immediate pressure of repayment, which was crucial during the early stages of our rapid-scaling. However, the trade-off was giving up a portion of ownership and control, which we wanted to maintain for strategic direction.
Debt financing, on the other hand, allowed us to retain ownership but required careful consideration of cash-flow to meet repayment schedules. In the end, we chose a hybrid approach, raising capital through a combination of both equity and debt. This gave us the flexibility to accelerate growth without over-leveraging or diluting too much ownership early on.
The results were successful. By balancing both forms of financing, we were able to scale efficiently while keeping our financial risk in check. The equity investment enabled us to fuel R&D and expand our customer-acquisition platform, while the debt helped with operational scaling without overly diluting stakeholder control.
Ashwin Ramesh, CEO, Synup
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Selected Debt for Full Ownership
We looked at equity versus debt by asking: Do we want control or speed? Equity gives you cash without immediate payback but costs you ownership. Debt lets you keep full control, but you’ve got to handle repayments. For us, it came down to keeping the vision intact. We chose debt financing because we wanted to maintain full ownership and were confident in our cash flow to handle repayments. It kept us in the driver’s seat while fueling growth.
Luke Beerman, Owner, Freedom Fence FL
Bootstrapped to Retain Ownership
When we evaluated equity versus debt financing, the decision was based on several factors, including control, risk, and cash flow.
With equity financing, we recognized the benefit of gaining capital without the immediate-repayment burden, which was attractive as we focused on growth. However, we were concerned about giving up control and ownership, especially since our product is closely tied to our vision. The long-term impact of dilution was a major consideration.
On the other hand, debt financing allowed us to retain full ownership while leveraging external funds. The key downside was the obligation to repay the loan regardless of business performance, which posed a risk, particularly in our early stages when cash flow was tight.
Ultimately, we chose to bootstrap and use personal savings to fund the business, allowing us to grow without external pressure or debt. We preferred this path to maintain full ownership and flexibility, focusing on customer success to generate revenue and reinvest into the business organically.
For others, the decision depends heavily on your business model, risk tolerance, and long-term goals. If you’re willing to trade some control for rapid growth, equity might be the way. But if you want to retain ownership and can manage the repayments, debt can offer more freedom.
Zeyuan Gu, Founder, Adzviser LLC
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Balanced Equity and Debt Financing
When assessing equity versus debt financing for my business, I focused on the trade-off between ownership dilution and financial leverage. Equity financing seemed inviting since it doesn’t require regular repayments, freeing up cash flow for growth initiatives. Yet, it meant relinquishing a portion of control and decision-making power, which I valued deeply. Debt financing, with its tax-deductible interest payments, preserved ownership but introduced repayment obligations that could strain cash flow.
My decision ultimately hinged on long-term goals and current financial health. We opted for a balanced approach—leveraging some equity to bring in strategic partners and using debt to capitalize on identified growth opportunities without overextending. This strategy allowed us to expand aggressively while maintaining core operational control. Through this process, I learned the vital role of financial forecasts and scenario planning in determining the optimal funding mix.
Valentin Radu, CEO & Founder, Blogger, Speaker, Podcaster, Omniconvert
Hybrid Approach for Initial Growth
I weighed equity against debt financing, considering control, potential for growth, and eventual long-term financial health. Equity financing may be quite enticing to start-ups because it serves as a source of raising capital without incurred repayments forthwith; however, the aspect of ownership dilution and control had to be kept in mind. Debt financing, on the other hand, means one maintains ownership but incurs interest payments over time, thus limiting cash flow in the short run.
Ultimately, I chose the hybrid approach whereby we began with debt to cover early growth without sacrificing equity, and then brought in strategic investors once we had begun to demonstrate traction. It gave us a chance to scale efficiently while maintaining control; the equity brought in late was valuable for the partnerships rather than just pure capital.
I would encourage businesses looking into these financing options to first establish where they sit in regard to their tolerance for risk and growth level. For the need for short-term capital—a situation in which you can service the payments, for example—debt may be a better option. Where one requires long-term strategic growth with minimal financial pressure in the short term, equity may be more appropriately suited.
Cache Merrill, Founder, Zibtek
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Debt Financing for Control
When considering some of the financing options, equity seemed attractive as the financial burden would be relatively reduced. However, we realized that giving up ownership could dilute our decision-making power, especially in the niche impact-driven industry known as recycling. Debt financing allowed us to retain full control over our operational choices, ensuring that our business could remain well within its core environmental goals and would not be pressured by anyone to compromise on it.
Debt financing helped us scale our recycling services without going away from the vision set out for the company. This decision enabled us to invest great effort in long-term sustainability and innovation—something not that easy if we had to answer to equity investors with possibly different priorities.
Gil Dodson, Owner, Corridor Recycling
Strategic Equity for Long-Term Goals
In our business equity vs. debt financing decisions, I looked more at long-term strategic goals and company culture as the primary consideration. Taking out equity is usually about recruiting investors who not only profit from their investments but might also steer the business. This may support our vision, or it might divert it, depending on the investor’s aspirations. It required me to think hard about whether new voices would add depth to the lens or undermine what had originally come to the table with us.
With debt financing, while securing the interests of the company does not reduce our shareholder equity, servicing debt also severely restricts our cash flow. This strategy is especially risky if the business has a sudden downturn.
So, I measured our cash position and market liquidity to see if we were capable of navigating any possible cash flow disruption without compromising operational integrity. Based on the research and discussions with our management team, we felt that a smaller equity swap to a strategic partner, who had everything we were committed to and had more expertise, was our next move. This was an important choice as it not only provided the capital needed but created a collaborative ecosystem that pushed us with greater strategic knowledge and market exposure and built a stronger, more culture-led growth trajectory.
Danilo Miranda, Managing Director, Presenteverso
Performance-Based Debt Financing
It was not simply, for me at least, a matter of weighing the familiar trade-offs such as ownership versus payment. I went one step further by considering how each candidate would match our culture and long-term vision. When you’re able to raise equity, you’re literally recruiting fresh voices that can potentially make choices in the very same way that our culture had evolved. And, although equity might get me the cash without any obligation to repay in one day, the cultural shift that new stakeholders entail wasn’t something I was ready to lose.
So, I did debt financing and did something uncommon: I brokered a performance-based payment plan. This meant that when we surpassed certain growth goals, we could adjust the payment structure accordingly. It let us breathe in the slow times and increase the payments in the more profitable ones. So we remained true to our internal culture and had full ownership of how the company was being run, without losing cash flow flexibility. We needed a winner-takes-all solution that felt custom and in truth, we got larger without being held in the palm of outside hands.
Alex LaDouceur, Co-Founder, Webineering
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Mixed Financing for Flexibility
To figure out whether equity or debt financing was best for my EdTech business, I looked at our growth stage, financial health, and long-term goals. I had to balance the cost of each option, how it would affect cash flow, and whether I’d still have control over the company’s direction.
Actually, raising money by selling shares seemed attractive for a fast-growing startup like ours since we wouldn’t have to worry about monthly repayments. Plus, equity investors can bring a lot of strategic value. But the trade-off is giving up some control. I read that about 75% of startups that raise equity end up with a significant dilution in ownership, which impacts how much say founders have. For example, we looked at a Series A round that offered $1.5 million, but it would’ve meant giving up 20% of ownership. That was a tough pill to swallow, so we hesitated.
Yet, debt keeps ownership intact but creates a repayment burden, which can be risky. We considered a $200,000 loan with a 6% interest rate, which seemed reasonable. But during slower months, the annual $12,000 repayment would still hit our cash flow. According to the SBA, cash flow is one of the top reasons 50% of small businesses don’t make it past five years—something I wanted to avoid.
The result? We chose a mix. We took on a smaller loan for short-term needs and raised a bit of equity (only 10% dilution) to fund bigger projects like our AI-based tools. This approach kept us flexible, and it paid off—we saw a 30% jump in revenue the following year.
Stefano Lodola, Founder & Course Author, Think Languages
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Equity for Financial Stability
Cash flow was one of the most important factors I considered when deciding between equity and debt. I realized that debt would force us to commit to regular payments, no matter how unpredictable our income might be.
With the business in its early stages, I couldn’t risk the added financial stress of monthly obligations. Equity gave us the room to breathe because it didn’t require immediate repayments, allowing us to reinvest into the business without worrying about cash flow interruptions.
Even though it meant giving up a portion of ownership, the stability it offered made it the right choice. In the end, I went with equity to give us more time to stabilize our finances.
Kyran Schmidt, Cofounder, Outverse
Combined Equity and Debt Financing
I had to reflect seriously on the long-term effects of both options when I was comparing equity and debt funding for my company. And you know, when you get equity funding, you are actually handing over half of your company, and it is not fun. It’s like getting a stranger to join you for dinner—you haven’t gotten the option of taking someone else with you for dessert.
I chose to do both, which is probably pretty ordinary for the reasons above, but here’s the catch: I structured the equity offers so that shareholders could (for a limited time) reverse their equity back into a debt instrument. This combination helped my investors be comfortable with the freedom and prevented me from feeling too much in control.
By the way, pro tip from me: I’d say take a look at the possibility of regulatory arbitrage. Most people don’t do it because it’s tricky, but here’s the concept: Using local regulatory differences, a fintech can make the most of both its operational and capital-funding model. It can save a lot of money, for example, by setting up pieces of your business in locations where there are more welcoming rules to borrowing.
Thomas Franklin, CEO, Swapped
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Equity for Strategic Partnerships
In the decision-making process between equity and debt financing, I leaned heavily on my personal experience and the needs of our business at that time. We were at a critical growth stage, and I recognized that the right investors could bring funding and crucial industry insights.
I had seen how other tech companies struggled under the weight of debt payments, which limited their ability to invest in innovation. For us, maintaining flexibility was essential. With equity financing, we could reinvest cash directly into R&D and marketing.
With equity financing, we retained cash to reinvest in R&D and marketing. While we gave up 20% ownership, our strategic investors contributed invaluable industry connections and helped boost revenue by 70% in two years. This choice aligned us with partners who share our long-term vision.
When considering equity, seek investors who offer expertise and alignment with your vision, not just funding. This approach can provide a solid foundation for both financial stability and long-term growth.
Brandon Bryler, Chief Executive Officer, Coimobile.io
Equity Financing for Strategic Benefits
When weighing the options of equity versus debt financing for our business, the core focus was on understanding our long-term vision and current financial position. Equity financing meant giving up a portion of ownership but potentially gaining partners who bring expertise and network benefits. Debt, on the other hand, would keep ownership intact but add financial strain through repayments. It was crucial to evaluate how each option aligned with our goal of becoming a leading platform in reclaiming mis-sold car finance. In our case, collaborating with experienced investors turned out to provide strategic advantages beyond just capital.
A vital part of this process involved conducting a thorough financial analysis to assess cash-flow stability and profitability forecasts. This analysis helped determine if debt repayments would be sustainable without limiting our growth potential. Since our business model includes a no-win-no-fee structure, having predictable cash flow was less certain, positioning equity as a more suitable option. The flexibility that equity financing offered allowed us to focus on scaling operations and investing in key areas without the immediate pressure of loan repayments.
A practical approach involves engaging in scenario planning. This technique involves forecasting different outcomes and assessing the impact under each scenario, such as economic downturns or rapid expansion. By doing this prep work, businesses can better understand the implications of financing choices on future operations. It’s important to align the financing strategy with the business’s mission and vision to not just compete, but to lead. For us, equity financing was the result, bringing in not only capital but also partners who shared our vision of financial justice for consumers.
Andrew Franks, Co-Founder, Reclaim247
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Debt Financing for Creative Freedom
We chose debt financing because, for a business like ours, control over our creative direction and decision-making process is essential. Our agency thrives on our ability to be flexible, experiment with new ideas, and adapt to client needs quickly. Equity financing, while appealing in terms of access to capital and potential strategic partners, would have come with strings attached, namely giving up a portion of ownership and potentially having to answer to investors. For us, that would’ve meant diluting the vision and agility that have been at the core of our success.
Debt financing allowed us to maintain full ownership and control while still getting the resources we needed to grow. We carefully assessed our cash flow and projected growth and realized we could comfortably take on debt without putting ourselves in a risky financial position. The fixed cost of paying interest was predictable and something we could easily factor into our budgeting. This option gave us the freedom to invest in new video-production tools, hire additional team members, and scale our operations without the pressure of outside influence on the business.
Another big reason for choosing debt was the nature of our work. As a creative agency, we need the ability to pivot quickly. Trends in video marketing change fast, and the last thing we wanted was to be tied down by outside opinions or slow decision-making processes that can come with equity partners. With debt financing, we could make bold, creative moves, whether it was adopting new technology or shifting our strategy based on market demand, without needing approval from investors. That kind of agility is critical in a fast-paced, creative industry like ours.
Spencer Romenco, Chief Growth Strategist, Growth Spurt
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