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Leveraging Startup’s Development with Debt

In: Startup Valuation

Author

Listed:
  • Roberto Moro-Visconti

    (Catholic University of the Sacred Heart)

Abstract

Seasoning startups can afford to collect debt whenever they start creating positive cash, build up worthy collateral assets, and soften information asymmetries. Leveraging growth with debt may increase it, albeit with a correspondent risk growth. Capital budgeting metrics, represented by Net Present Value or Internal Rates of Return, incorporate debt underwriting. This analysis is preparatory to Modigliani & Miller proposition II: as the proportion of debt in the company’s capital structure increases, its profitability, proxied by ROE increases in a linear fashion. An empirical case is provided, starting from a real balance sheet.

Suggested Citation

  • Roberto Moro-Visconti, 2021. "Leveraging Startup’s Development with Debt," Springer Books, in: Startup Valuation, chapter 0, pages 161-182, Springer.
    • Handle: RePEc:spr:sprchp:978-3-030-71608-0_7
    DOI: 10.1007/978-3-030-71608-0_7
    as

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