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Raising Entrepreneurial Capital, 2nd Edition by Suzanne M. Erickson, John B. Vinturella

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2

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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