Would you rather take a €100M or €500M exit?
The answer was obvious five years ago: €500M. However, I’m hearing something else lately. Founders are more cautious. More of them would take the €100M if liquidation preferences are better. A bigger exit doesn’t always mean a better outcome.
Once liquidation preferences kick in, the math can get ugly. You can sell for an eye-watering number and still walk away with a surprisingly small slice. Capital costs were always baked into the terms. Most founders just didn't see it at the time.
That's what this edition is about: the (true) cost of capital. I’m taking a look at what debt really costs versus what equity really costs. You’d be surprised how many founders underestimate its impact when funding their company.
In an era where capital efficiency has replaced growth-at-all-costs, understanding the true price of your funding choices has never mattered more. That's why it's important to review the cost for funding from different angles.
At first, capital costs seem straightforward. You get money and the opposite party wants something in return. If you go deeper, different layers occur that impact how much you actually pay for your capital.
There is capital cost that occurs immediately, and there is the one that is visible only later. This creates some kind of cognitive distortion. The absence of immediate cost doesn't mean the absence of any cost at all.
Equity doesn't show up on a P&L. Its costs are invisible, and therefore often easier to ignore or to put in a fuzzy "I'll think about this in 7 years" bucket. With debt, every euro of interest is immediate. It shows up in financial statements. The psychological weight is front-loaded.
Let me make this concrete with a simple example. Same company, two different funding paths:
The difference is €7.4M in your pocket.
However, debt is a commitment. If cash flow drops it doesn’t care about your narrative. All it cares about is repayment. Refinancing can become a problem at the worst time.
Equity, by contrast, is patient. It absorbs uncertainty and buys you time when the path isn’t clear. That’s why early-stage companies use it – and why they should.
The mistake is using equity as the default after uncertainty is gone.
Often we fixate on the most visible variable: the financial cost of capital. We care a lot about interest rates, valuations, and dilution percentages. However, these figures represent only half the equation.
The other one is the cost of control.
Every euro comes with a secondary price tag – a shift in how you operate, decide, and move.
Equity is often viewed as cheap because it requires no immediate cash outflow. In reality, it introduces a different kind of expense. Every investor brings mechanisms designed to protect their downside:
The danger here is a slow-onset paralysis. Speed is traded for consensus, and in the early stages, that is often fatal.
Debt is frequently positioned as the safer alternative because it leaves your cap table and strategy untouched. In practice, debt can affect how a founder thinks about liquidity and preservation. A debt provider won’t weigh in on your product roadmap, but they will usually attach covenants: financial guardrails around liquidity and leverage. Think of them less as “handcuffs” and more as discipline by design.
Where equity can slow decisions or strategy through ongoing debate and shifts, debt tends to slow them through pre-agreed rules.
The upside: you get predictability, focus, and an early-warning system that keeps the business financeable. Yes, it asks you to protect liquidity so repayments are always covered, but that same discipline can make growth more deliberate, prevent overreach, and help you stay in control while you scale.
Capital is a tool, and a trade-off. Your choice of funding is a choice of operating model. Here's how you can think about it:
The strongest funding structures I've seen use both. Founders deploy equity for strategic milestones where they need patient capital and aligned partners. They use debt for tactical execution where ROI is measurable and cash flow can service repayment.
For example: raise equity to build your product and prove market fit. Once you have repeatable revenue, use debt to fund customer acquisition, expand sales teams, or scale operations. This preserves equity for the highest-value moments while capturing the efficiency of debt for everything else.
There's a temptation to treat this as a simple optimization problem: Equity is expensive, debt is cheap, use more debt. End of story.
But that's not quite right either.
The question is: Which cost can you actually see? Debt makes its price legible. The interest rate is there in the term sheet, the repayment schedule is in the calendar, the covenant breach is a clear line you either cross or you don't. Equity hides its cost in the future, in outcomes that haven't happened yet, in a cap table that looks fine until the exit waterfall runs and suddenly it doesn't.
This is why founders consistently underestimate equity. The cost just isn't there yet. It’s somewhere in the future.
The practical implication is fairly straightforward: if you have predictable revenue and clear unit economics, you probably don't need to keep paying the uncertainty premium that equity charges. Debt exists precisely for that moment. Most of the time, using equity early is the right call.
The mistake is never graduating from it.
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