Why might debt financing be more appropriate?
At first glance, it may seem like equity is a better deal for a company than debt, but private equity investors are no fools. In fact, experienced private equity investors usually make a 25% return on investment (ROI), far more expensive for a company than the typical debt interest rate of less than 15%. Additionally, private equity investors know that an equity investment in a company is a much more risky vehicle for their money than a loan (i.e., debt) to a company. Therefore there are a number of checks and balances inherent in the structuring of a private equity investment and the corresponding ownership interest. So why does any company seek private equity capital? Private equity is often the only option for a start-up company with high growth potential. For example, TechForCash, a start-up software company, anticipates product development expenditures of $1 million during the two years of its life. In its third year, fourth, and fifth years, it expects to make $1 million, $2 mill
