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Cost of capital

Venture debt vs. equity dilution

Interest, fees and warrant kickers priced in dollars against the equity you would sell.

  • Exit sensitivity
  • Warrants included
  • Crossover marker
Debt advantage $2.52M
Equity dilution 10%
Peak service $46,608
Crossover $2.65M

Cost of capital

$1,000,000 raised · 11% APR · 8% warrants

Debt advantage Equity cost at exit minus headline debt cost. Positive means debt is cheaper by that amount.
$2.52M
cheaper than equity
Equity dilution Ownership sold in the equity path, and what that stake is worth at your projected exit.
10%
$3M at exit
Peak service The largest single monthly payment during the term. Lenders size facilities against this number.
$46,608
31.1% of gross burn
Crossover exit The exit valuation where both paths cost exactly the same. Above it, debt is cheaper in dollar terms.
$2.65M
Below the tested range

Exit sensitivity

$5M → $100M exit
Equity cost Debt cost (headline) Your exit $30M
-$5M$0$5M$10M$15M0$5M$25M$45M$65M$85M$100M
Equity cost versus headline debt cost across exit valuations from five to one hundred million dollars.

Debt is cheaper at every exit in the $5M to $100M range: the crossover sits at $2,647,697, below the test range.

Total cost of capital at a $30M exit

Bars share one scale, so a longer bar is a larger real cost. Debt bars are fully loaded, principal repayment included.

Equity 10% diluted forever $3,000,000
  • Shares sold 10%
  • Value retained at exit $27,000,000
  • Monthly cash strain $0
Venture debt non-dilutive, with a warrant kicker $1,483,588
  • Origination + legal $15K
  • Interest $228.59K
  • Warrant value $240K
  • Principal repaid $1M
  • Headline cost (fees + interest + warrants) $483,588
  • Cash service through exit $1,228,588
  • Balance still owed at exit $0
Differential $2,516,412 cheaper with debt on the headline formula

Fully loaded, counting every dollar of principal and interest that leaves the business, the gap is $1,516,412 in favour of debt.

Risk & hidden costs

Payment-to-burn ratio 31.1% · above the 20% tripwire

Peak service of $46,608 against $150,000 of gross burn. The tick marks the 20% threshold lenders typically covenant against.

  • Origination + legal fees Deducted at close, so you receive $985,000 of the $1,000,000 facility. $15,000
  • Total interest $110,000 during the 12-month grace, then $118,588 across 24 amortizing payments. $228,588
  • Warrant dilution $80,000 of warrants = 0.8% of the company, worth $240,000 at exit. $240,000
  • Principal repayment The largest line item, and the one headline comparisons omit: $1,000,000 of borrowed money must be repaid. $1,000,000

What it calculates

What a term sheet really costs, in dollars and ownership.

This calculator compares two ways to fund the same plan: sell equity at a negotiated valuation, or borrow the money and repay it with interest and warrants.

The answer depends on the exit. Equity keeps costing a percentage of every extra dollar of value, while debt costs a fixed set of fees plus a small ownership kicker. Below a certain exit equity is cheaper. Above it, debt is.

Both paths are priced in dollars at one exit valuation, with fees, interest and warrants as visible line items, and principal shown separately so the comparison is honest.

  • The true cost of the term sheet

    Origination fees, monthly interest and the warrant kicker as dollar amounts, not as an interest rate.

  • The crossover exit

    The exit value where both paths cost exactly the same, solved rather than eyeballed, with a live sensitivity curve.

  • Cash strain

    Peak monthly payment against your burn, with a 20% tripwire for the covenant risk lenders actually care about.

The math, in full

See how the cost of capital model is calculated

The amortization formula, the warrant valuation, the crossover derivation, a worked example and every assumption behind the comparison.

  • LaTeX formulas
  • Worked example
  • Crossover proof
  • Glossary
  • FAQ
Read the math