Ask HN: If you plan success, why ever raise equity instead of debt? If you believe in your company why would it ever make sense to raise equity instead of debt? |
Ask HN: If you plan success, why ever raise equity instead of debt? If you believe in your company why would it ever make sense to raise equity instead of debt? |
Loans drag on cash flow and payments made are at present value not discounted to the future. Those payments are not available for growth and there is always less cash on hand. As they say “cash is king.”
There are many many businesses where loans are better. And there are many ordinary investors which prefer ongoing income over all or nothing bets on equity.
Loans are income oriented and make more sense for companies with income oriented owners. Equity is capital oriented and can better provide compound returns. Of course there are bad (for growth) equity terms which extract cash like a loan and hold the company as collateral. The private equity investment model often works that way.
If no potential lenders do, you can’t borrow money. If those that believe in you don’t believe you that well, they’ll ask for high interest rates that make lending unattractive.
Finally, your belief in your company may not be absolute.