Leveraging Startup’s Development with Debt

This chapter explores the strategic use of debt financing in maturing startups as they transition from debt-free operations to leveraging growth through debt. It examines the conditions under which startups can safely incorporate debt, such as generating positive cash flows, building collateral, and mitigating information asymmetries. Grounded in Modigliani and Miller’s proposition II, the analysis demonstrates how leveraging can enhance Return on Equity (ROE) while also increasing risk. A practical case study illustrates these concepts, highlighting the balance needed between debt and profitability. The chapter provides a comprehensive framework for startups to manage debt strategically, offering insights that contribute to the broader discourse on startup financing and risk management.