Understanding the Relationship between Equity and Debt.
Why would you raise Equity capital to grow when you know it reduces your Ownership Percentage?
Many owners fear the loss of the “upside” caused by Dilution. They also fear not reaching the high Return Expectations of Equity Investors.
However, Equity does have advantages over Debt, namely, Flexibility. Equity provides a business with the flexibility to take on greater risks, and to invest with more Patience. If you’re in a cyclical industry or have a business with variable earnings (such as in most of Agriculture), your business is particularly vulnerable during those periods of a downturn, and of lower earnings.
This is why we recommend “turning back the dial” on Debt.
We recommend that you find the line for what the “market will bear” and then take a step back.