Alternatives in Venture Financing
Debt Capital
John Vinturella and Suzanne Erickson
Introduction
There is no one best method for raising capital. Financing methods will and should vary with changes in the life stages of the firm, in the economy, in competitive factors, and as a result of legal, legislative, and regulatory actions. Top entrepreneurial companies use various combinations of debt and equity, depending on which is the most advantageous for the stage of growth they are financing. The aim in financing is to create increasingly higher valuations for the firm by minimizing the total cost of raising capital.
The cost of capital is the weighted average cost of the firm’s debt and equity calculated as
where
WACC=weighted average cost of ...
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