Equity Investors vs. Debt Investors

Many startups don’t understand what is the difference between Equity Investors and Debt Investors. We would like to briefly explain the differences.

Equity = Investment

1. For: generate future income, you don’t sell later
2. Use: running cost, to run operation, ex. employee, marketing, rent
3. Investors get: company shares, profit(income-expense) of the company (profit is not only expressed as money, but it could also be expressed as cost)
4. Return on investment: is higher than Debt investor, but the risk is higher as well
5. Investors’ Risk: company spend too much cost, and they can’t pay back to investors
6. Investor need: help growth management

Debt = Loan

1. Investors get: interest of the loan
2. Return on investment: around 20% per year
3. Investors’ expense: tax, bank fee
4. For: sell later, depends on the company
5. Use: buy material to manufacture the product, buy the product to sell later
6. Advantage: Lower risk to keep the value

If you have any question, or you have some advice, please feel free to leave your comment, or discuss with us.