How companies raise money
Why Selling a Piece of Yourself Is Sometimes Cheaper Than Borrowing
The most expensive money a company can raise is often the money it never has to pay back.
The Idea
When a company needs capital, it faces a choice that looks simple on the surface: borrow the money, or sell a share of the business to investors. Debt means repayments and interest — a fixed obligation regardless of whether the business thrives or collapses. Equity means handing over a slice of ownership, with no repayment schedule, no interest, and no obligation to return anything unless the company generates profit and chooses to share it. The instinct is to assume debt is the costly option — you pay interest, after all. But equity carries a hidden cost that doesn't show up on a bank statement: dilution. When you sell shares, you are permanently reducing your own claim on the company's future value. If the business becomes enormously successful, those early investors who bought in cheaply will capture a portion of every euro of that success, forever. This trade-off sits at the heart of corporate finance. The question isn't just 'how do we get the money?' — it's 'what are we actually giving up to get it?' A company with stable, predictable cash flows — a utility, say, or a mature retailer — can service debt comfortably and often prefers to keep ownership intact. A startup with uncertain cash flows but enormous potential upside might gladly offer equity to avoid being crushed by debt repayments in its fragile early years. Financial economists call the optimal mix of debt and equity a company's 'capital structure', and finding it is less a maths problem than a strategic judgment about risk, growth, and what kind of future you're betting on.
In the World
In 1976, Apple was incorporated with an arrangement that would become legendary in business school case studies. Steve Jobs and Steve Wozniak gave up a third of the company to Mike Markkula, an early Intel executive, in exchange for a relatively modest injection of capital and, crucially, his contacts and credibility. No repayment schedule. No interest. Just ownership. At the time, it seemed straightforward — they needed money and expertise, and equity was the only realistic currency they had. Banks don't lend to two young men with a circuit board and a dream. But the decision meant that when Apple eventually became one of the most valuable companies in history, Markkula's stake — though diluted through many subsequent funding rounds — represented an almost incomprehensible return. Jobs later reflected with some bitterness on how much equity had been given away in those early years. The company had essentially sold its future prosperity at a steep discount because it had no other way to survive the present. This dynamic plays out endlessly in venture capital: founders trade ownership for survival and momentum, hoping that the business they build will be valuable enough that even a smaller slice is worth more in absolute terms than a larger slice of nothing. Sometimes it works brilliantly. Sometimes founders look back and realise that their cheapest-seeming capital was, in hindsight, the most expensive thing they ever sold.
Why It Matters
Most people encounter this logic not in boardrooms but in their own lives, in subtler forms — taking on a business partner, splitting equity with a co-founder, or simply understanding why a company whose stock you own might choose to issue new shares and why that can quietly erode the value of yours. But the deeper insight is about how to think about the true cost of any resource. The price tag on something — the interest rate, the monthly payment, the headline number — is rarely the whole story. The equity investor who asks for 'nothing upfront' is not being generous; they are making a calculated bet on your future, and they expect to be richly rewarded for the risk they're absorbing now. Once you see that every source of capital comes with a real cost, even when that cost is deferred, invisible, or dressed up as a partnership, you start reading financial decisions — by companies, by governments, by people — with sharper eyes. The question shifts from 'can we afford this?' to 'what are we actually agreeing to?'
A Question to Ponder
When someone offers you something with no strings attached, what are they really getting in return — and have you priced it honestly?
Get a new one of these every morning.
Start learning with Thinkable