Marc Dangeard wrote an interesting post yesterday on the cost of VC$ vs. debt. He gave a clear and extreme example of a company that gave up a lot of equity only to go on and achieve a significant increase in value. Marc's illustration clearly shows the dilution in value to existing shareholders that could have been saved if they had raised that money in debt.

VC funding has been and always will be the most expensive form of funding in the market. Still, I'm not sure the comparison with debt works as you often cannot choose one over the other. Especially when it comes to financing startups. Why?

1.) Unprofitable and small companies cannot usually access debt. Certainly not in the same amounts as they can with equity.

2.) Investors get in for one simple reason - to get out at a profit. Low valuations going in compensate for the risk that an investor may not get out for a long time if ever. Given the exit environment these days, it is very uncertain how investors will get their money + a return back.

3.) Loss of IP: If you don't repay your debt, in the most extreme circumstance you can lose your whole business. IP is the most important asset a startup has and any smart lender will demand it as security.

The argument for selling part of your company of course is that it's better to own a smaller % of something big vs. 100% of nothing. Still, you should not use equity to fund all your capital needs. As you get more mature (and profitable) debt should take on an increasing role since it is cheaper.

The only meaningful debt available to growth companies early on is venture debt. You can read more about thathere.