While equity remains the most talked-about funding route among startups, a new study suggests that debt financing may play an equally potent role in driving business success. Recent findings from a joint research effort by German fintech firm re:cap and equity management platform Eqvista highlight the significant impact strategic debt can have on early-stage startups.
The study examined more than 10,000 data points from 530 startups and discovered a strong correlation between thoughtful debt utilization and increased company valuation. Specifically, startups that incorporated debt into their capital strategy enjoyed valuation increases of nearly 50 per cent compared to those relying solely on equity.
This trend was especially pronounced among smaller startups with annual revenue between US$100,000 and US$1 million. These companies not only saw faster revenue growth but also gained stronger valuation uplifts, suggesting that early access to capital through debt can significantly accelerate business development.
Paul Becker, CEO and co-founder of re:cap, emphasized the shift in perception that needs to happen:
“Debt is not just a fallback option for startups – it’s a strategic tool. When used with care, it can drive expansion, protect founder equity, and demonstrate financial discipline to investors.”
The findings challenge the traditional belief that debt should only be considered when equity isn’t available. Instead, they position debt as a competitive advantage for startups seeking to scale quickly while maintaining ownership and steering control.
