Launch Capital
March 12, 2026
The short answer: Equity means selling a share of your company in exchange for capital, with no repayment schedule. Debt means borrowing money you must repay with interest while keeping your ownership. Companies with uncertain, early-stage outcomes tend to lean on equity, while those with predictable cash flow or hard assets can often carry some debt.
When you raise equity, investors become part owners. They share in the upside and the downside, and they are repaid only if the company succeeds. This makes equity better suited to businesses that are still proving themselves and may not generate steady cash for some time. The cost is dilution: you own a smaller share of the company, and investors may receive rights such as board seats or preferences.
With debt, a lender provides money that you repay on a schedule, usually with interest. Lenders do not take ownership, so founders keep more of the company. However, payments are due whether or not the business is going well, and lenders may require security over assets or personal guarantees. Too much debt can leave a young company with little room to manage a bad quarter.
Companies in areas such as data centers, compute and power often need significant capital for physical assets. They sometimes use a mix, with equity to fund early risk and debt secured against assets or contracts once revenue is more certain. Sequencing matters: lenders usually want to see equity already committed.
Many companies use both over time. Hybrid tools such as convertible notes or revenue-based financing sit between the two and have their own trade-offs. Read the terms carefully, since details on repayment, conversion and security can change the real cost considerably.
The legal and tax consequences of equity and debt differ and can be complex, so speak to a qualified lawyer and accountant before committing to either route.
Ask what could go wrong. If revenue is uncertain, the flexibility of equity usually matters more than keeping your ownership. If you have contracted income or valuable assets, borrowing a portion may let you grow while giving up less of the company. Model the monthly repayments against your most cautious forecast before you agree to any loan.
Launch Capital is a Toronto venture capital firm and family office that provides growth capital to Canadian technology companies, led by operators who have built and exited companies. Send us your pitch. It takes two minutes and no deck is required.
