Dr. Thomas J. Powell breaks down when to give up equity instead of borrowing money. The choice hinges on runway, leverage, liquidity, and risk, especially personal guarantees and debt covenants that can trap you.
Chapters
Hey there, Tom Powell with the Founder's Office. And today's topic, when to give up equity instead of taking out more debt. And the answer is it always depends. But a big simple answer is, would you rather give up a piece of the pie or would you rather owe the bank and possibly put up personal guarantees, which is very, very risky to the founder? It's what we do here at the founder's office is answer some of these questions in that capital alignment method because it always depends upon the Runway and the risk. There's issues like liquidity there. Look, issues like covenants where we have seen that it wasn't the equity shareholders that ended up taking over the business. It was actually the bankers at the end of the day through debt covenants that the founders couldn't meet. And then through that they lost control of their company and someone else ended up running the company and it had nothing to do with, with raising equity capital. So you want to know your c of the six keys for change when liquidity is greater than the leverage, meaning can you actually utilize that leverage to build on the company, produce greater income for the founder and for the investors in that growth? And when is that the right time to do it? That's what we do here at the founder's Office as we help the founders get capital alignment through our capital alignment method and the six keys. And we help you get prepared if you're doing a capital raise. Capital raises include getting prepared to meet with the banks, the private capital markets out there, the investment banks, whatever you're looking for, there's a piece to that. And that's what we do here. And we are the founders advocate in that model. Join us at the founder's office, we have a Wednesday lunch and learn where you can actually make your presence presentations to us, whether it's to the bank or it's to the equity founders that you're looking or equity raises that you're looking to do. We can help you there. Have a great day.
