Ep. 196 – Seed Funding 101: Equity Is Expensive

SIBP-Blog-NEW-4Given the seemingly lower risks and potential benefits of equity, you might wonder why it isn’t always the preferred instrument for early-stage funding. There’s one simple reason: Equity is expensive. Every percentage point you give up in an equity deal takes a huge bite out of your profit when it’s time to exit. For some businesses, taking on debt to finance growth might make better long-term sense.

In this episode, host and business coach Tom Ryan talks about the bigger picture of debt and equity as fundraising instruments. As always, Tom is joined by producer and co-host Jason Pyles.

• Show opening, and approaching 200 episodes

• Recap of personal exposure risks with both debt and equity (2:00)

• Is equity the clear winner for funding? (3:00)

• Can you actually get a loan? Debt isn’t always an option for most startups (4:00)

• Equity is incredibly expensive, particularly if you are successful (4:30)

• Jason’s analogy with musicians and managers (6:30)

• Tom’s example of a bankable company looking for financing (9:00)

• Debt versus Equity exercise (9:30)

  1. How much money do you need?
  2. How much ownership are you willing to give up for that money? (Dilution)
  3. What kind of payments do you need to make?
  4. What happens when things go well, and you successfully exit?
  5. What happen if things go badly, and the company fails?

• Next episode: Debt and hybrid instruments

• Sign off, and how to contact the show

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