Hey future banker,

Raising money isn’t just about getting cash—it’s about keeping control. So how do companies decide?

Why would a company choose to issue equity instead of debt?

Let me break it down simply:

Think of debt like a mortgage and equity like a roommate. Debt requires fixed monthly payments, while equity shares in both the upside and downside. This basic difference drives the choice.

High-growth companies often prefer equity. When cash flows are uncertain but growth potential is huge, why lock yourself into fixed debt payments? Think early-stage tech companies - they need flexibility to invest in growth.

Companies with heavy debt loads might have no choice. Just like banks won't give you a mortgage if you're already stretched thin, lenders avoid companies with too much debt. Equity becomes the only option.

Market timing matters hugely. Companies issue equity when their stock price is high (like selling your house in a hot market) and prefer debt when shares are undervalued.

Industry norms play a role too. Tech companies tend to use less debt while utilities load up on it. Stable cash flows? Debt makes sense. Volatile business? Equity might be safer.

Remember: It's about matching financing to business reality. Stable cash flows support debt. Uncertain futures favor equity. The best choice depends on where your company is in its lifecycle and what the market's offering.

Talk soon,

Sam