Equity, debt and grants: which funding fits your startup?

Founders often hear about angels, VCs, venture debt and grants as if they were interchangeable. They’re not. Each comes with a different cost and different expectations.

Equity

An investor gives you money in exchange for a share of your company.

• You don’t repay it, but you give up part of the future value and some control.
• Investors expect the company to grow enough to give them a large return, usually through an acquisition or listing.
• Angels, seed funds and venture capital firms invest equity, often through convertible instruments first.

Debt

A lender gives you money that you repay with interest.

• You keep your ownership, but repayments are due whether or not the business is doing well.
• Lenders look for cash flow or assets to rely on, so pure debt is harder for pre-revenue startups.
• Venture debt and revenue-based financing are designed for startups, but they still have to be repaid and may include warrants (a small equity component).

Grants

A government body or institution gives you money that you don’t repay and that usually doesn’t take equity.

• Grants usually fund specific activities such as research, a prototype or a pilot.
• They are competitive, have eligibility rules, and require reporting on how you spend the money.
• Some programmes mix grants with convertible debt or equity — read the terms.

Which fits you?

• Idea stage: grants and angels who back strong teams
• Early traction: angels, seed funds, pre-Series A convertibles
• Proven growth: venture capital, growth equity, venture debt
• Steady cash flow: bank loans, working capital, revenue-based financing

No instrument is guaranteed. Investors and lenders decide based on your team, traction and fit.