Looking at China's start-up companies, a large number of entrepreneurs have made rapid development of the company with the help of equity financing, compared with the development of companies with the help of debt financing. However, relying solely on equity financing also has certain limitations. Although equity financing is less risky than debt financing, the capital use cycle is longer, and there is no need to repay the principal and interest, but over-reliance on equity financing will lead to the continuous dilution of the equity of the founding team, the continuous dispersion of the company's control, and even the loss of control. Therefore, while developing and expanding with the help of equity financing, enterprises cannot ignore the advantages of debt financing, low financing costs, and no decentralization of control.

Enterprises that want to achieve sustainable and stable development need to be balanced, and the same is true in the choice of financing methods. Start-ups need to conduct in-depth investigation of financing methods from various aspects based on their own circumstances, and guide the combination of equity financing and debt financing, so that the company can have the ability to resist various potential risks while obtaining strong financial support.

◆ Financing in the form of common shares

The purpose of the investor choosing equity financing is to share the capital appreciation when the company's operating conditions are relatively good, so the enterprise can require the investor to share the operational risk with itself and issue ordinary shares for financing. If the target of the corporate financing is an overseas venture capital company with many years of investment experience, the company will have to change its strategy and can no longer raise funds with common shares, unless the company has a high bargaining chip.

◆ Debt financing

Because holding debt can obtain certain benefits, investors will also choose debt investment. In addition, compared with equity, debt has the priority to repay, which can reduce investment risks. If the investor chooses to invest in creditor's rights, the financing enterprise must clearly stipulate the priority of various claims in the contract to avoid disputes in the future.

◆ Financing in the form of preferred shares

Venture capital firms like to invest in preferred shares, because holding preferred shares means acquiring voting rights. Venture capital institutions are required not only to enjoy general voting rights, but also to have the right to veto major corporate matters, such as corporate refinancing, debt arrangements, etc.

◆ Financing in the form of convertible bonds

Convertible bonds are used to obtain funds from investors in the form of loans, and then negotiate the conversion of debt into equity, thereby reducing investment risks. At the same time, holders of convertible bonds can also share in the appreciation of the profits of the enterprise by converting debt into equity.

◆ The most preferred investment tool used by venture capital companies

For venture capital companies, their favorite investment vehicles are convertible preferred shares or convertible debts, because both of these investment vehicles can selectively convert preferred shares into common shares, or convert debt into preferred shares, so as to avoid investment risks, obtain preferential repayment, and share the value-added income of the enterprise.