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Debt financing is often overlooked in startup funding conversations, but new research shows its potential as a powerful growth lever. A joint study by fintech re:cap, the company behind the Capital Operating System (Capital OS), and equity management software provider Eqvista analyzed more than 10,000 data points from 530 early-stage startups. They found that companies strategically using debt see faster revenue growth and significantly higher valuations.
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The analysis reveals that startups leveraging debt financing achieved valuation uplifts of up to 49.7% compared to peers relying solely on equity. Smaller, early-stage startups with revenues between $100K and $1M benefited most, experiencing both faster growth and higher valuations.
“Debt for startups is a strategic opportunity; when managed with foresight, it can unlock growth, preserve equity, and signal discipline to investors,” said Paul Becker, CEO and co-founder of re:cap.
“This research shows that debt should not be considered a last resort, but rather a core component of a diversified capital stack. Startups that understand this dynamic are better positioned to scale sustainably and retain control of their future.”
Key Findings from the Study
#1 Debt adoption increases with scale
The share of companies using debt rose as revenues grew:
- 24% in the $100k–$1M bracket
- 26% in the $1M–$5M bracket
- 36% in the $5M–$10M bracket
This reflects greater access to debt as companies mature and lenders gain confidence.
#2 Debt drives valuation uplifts
Companies with debt consistently achieved higher revenue multiples than peers without debt:
- +49.7% in the $100K–$1M bracket
- +46.5% in the $1M–$5M bracket
- +29.7% in the $5M–$10M bracket
These findings highlight the strong link between capital structure and company value.
#3 Startups with smaller revenue benefit most from taking on debt
- Companies in the $100K–$1M bracket that utilized debt experienced slightly faster growth (35% CAGR compared to 34.2% overall).
- These companies also saw the largest increase in valuation (+49.7%).
These numbers illustrate a clear trend: as startups scale, debt becomes both more accessible and more impactful. Early-stage companies benefit most in relative terms, as debt enables them to accelerate growth without giving up equity, often resulting in substantially higher valuations. For later-stage startups, the advantage lies in signaling maturity and financial discipline – qualities that strengthen investor confidence and improve negotiation power in future fundraising.
Startup founders navigating today’s market conditions
The study’s findings are also reflected in the experiences of startup founders navigating today’s market conditions. When she was raising debt, Sophie Chung, founder and CEO of Qunomedical, explained: “Raising equity now wouldn’t be a smart move given our near break-even point and the expected surge in growth. We need to demonstrate traction once more and enter the next fundraising round from a position of strength. Additional dilution at this stage would only be detrimental.”
Her perspective underscores a growing sentiment among founders: debt is not just a financing tool but a strategic choice to retain control and optimize timing for equity rounds.
