Debt vs. Equity

| March 4, 2008 | 1 Reply

I do not know a single internet-based company that decided to use debt vs. equity as a main source of working capital. Perhaps it’s because most companies need a fair amount of capital, and there isn’t a proven business model yet. In this scenario, equity financing makes perfect sense.

But what about internet companies with revenues and low overhead? Would working capital debt (guaranteed by our wonderful government – SBA) work just as well? Sure, you have to pay it back, but with a 5-7 year payback term and rates so low, it should be considered. And, you’re not selling off the company to finance your working capital.

I’m going to further explore this and will post back my findings.

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Category: At Work, Venture Capital

  • Debt financing is also tax deductible but, be careful with how much you take — as you increase your debt financing, your future equity partners will require a higher rate of return — in layman’s terms, you’ll get less money from them. With as many users as you folks have, and the fees you charge, why not self-fund?