One costs you cash. The other costs you control. Choose wisely.

A founder I worked with recently shared this after raising a ₹3 crore equity round:

Another avoided equity, took on debt, and later said:

Here’s the mistake both made:

They didn’t measure the true cost of capital—only the immediate pain or comfort.

Let’s unpack the difference between equity dilution and debt interest, and how to evaluate what’s actually costing you more.

Step 1: Understand the Nature of Cost—Cash vs. Ownership

Debt is an upfront commitment.

You repay with cash + interest, typically monthly or quarterly.

Equity is a long-term compromise.

You repay in ownership and influence—forever.

Ask yourself:

Step 2: Model the Math—Beyond Just Interest Rates

Let’s compare two options for a ₹1 crore raise:

Option A: Debt

• ₹1 crore loan at 12% interest

• 3-year repayment = ~₹1.36 crore total

• You still own 100% of your company

Option B: Equity

• ₹1 crore in exchange for 10% equity

• If company exits at ₹100 crore = ₹10 crore goes to that investor

• You just “paid” 10x over—if the exit happens

Debt hurts cash flow now.

Equity hurts exit value later.

Neither is wrong. But both need forecasting, not gut feeling.

Step 3: Factor in Risk Tolerance

Debt:

• Predictable cost

• High pressure on cash flow

• Can lead to default if revenue stumbles

Equity:

• No immediate repayment

• Pressure from investors to grow aggressively

• Can lead to misalignment on vision and timeline

If your revenue is stable, debt is cleaner.

If you’re pre-revenue or highly volatile, equity gives breathing room.

Capital isn't just math—it's psychology.

Step 4: Evaluate Based on Stage and Use-Case

Use debt when:

• You have predictable income (SaaS, services, D2C with margins)

• Funds are for working capital, inventory, or receivables

• You want to retain full ownership

Use equity when:

• You’re investing in product development, team, or market expansion

• You don’t expect immediate returns

• You value strategic support and long-term partnership

Match the capital to the intent, not just availability.

Step 5: Blend Capital Strategically

You’re not stuck choosing one.

The best-run startups often use:

• Equity for risk capital

• Debt for revenue-backed operations

• Internal accruals for reinvestment

Capital is a toolkit, not a toggle.

Use each when it serves your growth—and protects your cap table.

TL;DR – Too Long; Didn’t Read

• Debt costs cash now. Equity costs ownership forever.

• Run real exit math before giving away equity—it adds up fast.

• Use debt for working capital and predictable income. Use equity for long-term bets.

• Capital isn’t just funding—it’s a decision about power, pace, and partnership.

• Blended strategies protect both cash flow and control.

Capital isn’t cheap.

But uncalculated capital is the most expensive kind.

Before you raise, run the math, pressure test the psychology—and always ask: