Back in Lesson #109, we compared equity to convertible debt to bank debt as finacing options for your early stage business.  There is actually another class of investment called venture debt, which is structured as a hybrid between equity and bank debt.  It has a lot of the debt features associated with a loan, although at typically higher costs, plus some equity-based incentives through the form of warrants or other royalty on revenues.

The weighted average of cost of capital for venture debt ends up around 25% per year, in the middle of bank debt at 5-10% per year and equity at 40-50% per year.  And, it is designed for companies that financially sit in between the two stages (e.g., have some revenues and traction, but not large enough to secure a typical bank loan).