Dawn Capital
Published in

Dawn Capital

Burning your Equity

Dollar notes burning
Photo by Jp Valery on Unsplash
  1. Entrepreneurs should benchmark the level of investment their business is making relative to its cost of capital. Companies with a lower cost of capital should feel able to spend more to chase growth. At the other end, this is an early warning for entrepreneurs with a high cost of capital that they are heading for low ownership stakes in their own businesses if changes are not made.
  2. Entrepreneurs should always know their cost of capital, since it dictates how much burn they can afford. Dipping into the funding market every 18 months to two years is not frequent enough: your cost of capital can change quickly.
  3. If your cost of equity is cheap, raise more money (not less to minimise dilution). Every company has its ups and downs, having one to two years’ worth of cheap capital on your balance sheet buys you time to weather the inevitable storms, or to gracefully adjust to a new reality.

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