The Finance Playbook for VCs and Startups


For a company to achieve its goals it should be financed appropriately. Sources of financing include capital self-generated by the company (known as bootstrapping) and capital generated from external funders, obtained by issuing new debt and/or equity. The financing mix a company chooses will impact the valuation of the firm, thus a well-thought-out decision is required.

Sources of Capital

Equity Capital

Companies can sell their shares to investors in order to raise capital. In this case, investors or shareholders would expect an upward trend in the value of the company over time (or for the company to appreciate in value) to make their investment a profitable purchase. Investors prefer to buy shares of stock in companies that will consistently earn a positive rate of return on capital in the future, thus increasing the market value of the stock of that company.

Debt Capital

Companies may rely on borrowed funds (debt capital or credit) as sources of investment to sustain ongoing business operations or to fund future growth. Debt comes in several forms, such as through bank loans, notes payable, or bonds issued to the public.