How a company raises expansion capital can have profoundly different effects on its owner. Robert Robison, an independent consultant in Sanibel, florida, who works with entrepreneurs getting financing, says, "Most entrepreneurs would choose debt [equity] if they could get it, because they believe they wouldn't have to give up any control. But it's not always a choice. Few new companies have assets to collateralize-like land, equipment or a patent. Entrepreneurs who do often end up leveraging their most valuable asset, and there goes the business if they don't satisfy the debt."
Of course, there's the psychology of ownership. Certain entrepreneurs just don't want to give up anything. According to Robison, "In [my] 15 years at PricewaterhouseCoopers, my biggest task in advising entrepreneurs was getting their mind around sharing control."
A look behind the scenes at two entrepreneurs who made it through the financing process highlights the profound differences between debt and equity financing. Entrepreneur Jane Witheridge reveals what happened when she borrowed money to purchase and expand her small business. Farhad Mohit, on the other hand, opted instead to sell ownership of his BizRate.com to venture capital investors-and has a different story to tell.
Cynthia Harrington, a freelance writer in Austin, Texas, writes about business for a variety of publications, including Bloomberg Wealth Manager and Senior magazines.