The principle
Debt creates repayment obligations under a contract. Equity exchanges an ownership interest for capital and can include governance, economic, and information rights. Some structures combine features through warrants, convertible instruments, or revenue participation. Read the actual terms rather than treating every financing option as a pure category.
Put it into practice
Debt can fit a defined investment supported by predictable cash generation. Equity may fit a longer or less certain path where near-term repayments would constrain the business. Compare the milestone each option funds, the downside if progress slows, and the resources or relationships an investor or lender contributes.
What people often miss
Avoid comparing a loan’s stated interest rate with equity as though ownership had no cost. Equity can share substantial future value and control, while debt can create default risk and personal exposure. Build a capitalization view and a cash forecast together. The decision can include a staged combination of internal cash, debt, and equity rather than one permanent choice.
Your next-step checklist
- Repayment capacity and milestone timing
- Ownership and governance impact
- Downside and future funding scenarios
- Complete economic terms of hybrid structures
Crack this combination.
Which option generally creates scheduled repayment obligations?
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Sources & further reading
This file draws on the following references. Product availability and requirements must be confirmed with the provider.
Levr: debt, equity, and bootstrappingLevr: understanding venture debt