Using only expensive funding options, like equity, can make financings unnecessarily expensive and dilutive for the team. The more you can supplement and extend your equity raises from revenue to low-cost debt products, the more you can drive down the overall cost of capital to the business. 

In many cases, you can’t go back to your investor or lender and renegotiate the deal after receiving the financing. But you can lessen the dilution to yourself and your team by supplementing expensive (read: equity) capital with other lower-cost capital options. 

The math doesn’t lie! So follow the footsteps of the savvy founders before you and seek out lower-cost of capital options to use them to your advantage.

One way of putting this into practice is always raise some debt alongside your equity raise. Luckily this has become easier for startups to raise venture capital because of the growing venture debt industry. 

A good rule of thumb is that 25% of the equity raised could be available to you in debt. However, we’ve seen it as high as 50%. 

While blending your raise can undoubtedly help, our ol’ friend Weighted Average reminds us that smaller doses will only go so far in bending your cost of the capital curve. Transitioning your company away from predominantly ingesting high-cost options, such as equity, is the only way to have a significant impact on lowering your blended cost of capital.  

In the case of most companies, this was never an EITHER/OR decision but an AND. By leveraging lower-cost products in concert with equity raises, they were able to extend the time between fundraising, create more value in their businesses, and raise at higher valuations than they would have if they’d been relying on equity financing alone.