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Equity vs Debt: Dilution Cost Calculator
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Edit the yellow cells. It compares the dilution cost of raising equity against the all-in cost of the same amount as venture debt. Part of the CFOmatrix Venture Debt series, cfomatrix.in. Approximate model, not financial advice.
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INPUTS (edit the yellow cells)
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Current company valuation (Rs cr)100.0
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Capital you need (Rs cr)10.0
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Expected valuation at next round / exit (Rs cr)1,000.0
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Debt interest rate (% p.a.)14.0%
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Debt tenure (years)3.0
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Warrant coverage (% of loan)10.0%
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Processing fee (% of loan)1.5%
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EQUITY ROUTE
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Equity stake you sell (post-money %)9.1%
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Cost of equity = that stake at the future valuation (Rs cr)
90.9
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DEBT ROUTE
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Interest over the term (approx, Rs cr)4.2
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Processing fee (Rs cr)0.2
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Warrant dilution (% fully diluted)1.0%
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Value of warrant stake at the future valuation (Rs cr)10.0
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All-in cost of debt (Rs cr)14.4
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THE COMPARISON
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Cost of equity (Rs cr)90.9
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All-in cost of debt (Rs cr)14.4
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You save with debt (Rs cr)76.6
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Debt is cheaper by6.3x
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Note: interest is a simple approximation (actual reducing-balance interest is usually lower). The warrant cost assumes the lender holds the stake to the future valuation. This shows the principle: when the company grows a lot, equity is far more expensive than debt.
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