International Journal of Engineering Technology and Management (IJETM) Available Online at www.ijetm.org Volume 3, Issue 4; July-August: 2016; Page No. 25-29 ISSN: 2394-6881 Corresponding author: Kumar Rishabh 25 Analysis of Capital structure of Startups Kumar Rishabh 1 , Avtansh Thakur 2 , Rohan Mittal 3 1 Indian Institute of technology, Hauz Khas, New Delhi, 110016, India rishabhrk33@gmail.com 2 Indian Institute of technology, Hauz Khas, New Delhi, 110016, India thakuravt@gmail.com 3 Indian Institute of technology, Hauz Khas, New Delhi, 110016, India tt1130959@textile.iitd.ac.in ABSTRACT: Debt/Equity Ratio is a debt ratio used to measure a company's financial leverage, calculated by dividing a ĐoŵpaŶLJ’s total liabilities by its stockholders' equity. The D/E ratio indicates how much debt a company is using to finance its assets relative to the amount of ǀalue ƌepƌeseŶted iŶ shaƌeholdeƌs’ equity. In this paper, we have compared D/E ratio of various startups and mapped the changes in behavior of these ratios. The formula for calculating D/E ratios can be represented in the following way: Debt - Equity Ratio = Total Liabilities / Shareholders' Equity Key word: Venture debt, Leverage, Collateral, Break-even, Fixed cost, Equity, Introduction Debt financing means borrowing money from an outside source with the promise of paying back the borrowed amount, plus the agreed-upon interest, at a later date. Traditional secured loans, like those offered by banks, are one form of debt financing. Such loans are typically paid back in monthly installments and require a personal guaranty on the part of the borrower. Inventory, accounts receivable, equipment, real estate and insurance policies can all be used as security on a bank loan. If the borrower can't pay back the loan, this collateral can be used to satisfy payment. The process of raising capital through the sale of shares in an enterprise. Equity financing essentially refers to the sale of an ownership interest to raise funds for business purposes. Equity financing spans a wide range of activities in scale and scope, from a few thousand dollars raised by an entrepreneur from friends and family, to giant initial public offerings (IPOs) running into the billions by household names such as Google and Facebook. Debt Financing Advantages: Cost Reduction Compared to equity, debt requires lower financing cost. Thus, companies often mix debt into their capital structure to bring down the average financing cost. Using debt, companies are contractually liable to make periodic interest payments and return debt principal at maturity. As a result, debt holders bear less risk, compared to equity holders, who often have no recourse for their investments if companies fail. In the event of a company liquidation, debt holders also have the senior claiming rights to company assets, which gives them another layer of protection for their investments. Therefore, a safer debt investment requires less cost compensation. Profit Retention While usiŶg deďt ŵaLJ add pƌessuƌe to a ĐoŵpaŶLJ’s ongoing operations as a result of having to meet interest-payment obligations, it helps retain more profits within the company compared to using equity, which requires the sharing of company profits with equity holders. Using debt, companies need to pay only the amount of interest out of their profits. Using equity, on the other hand, the more profits a company makes, the more it has to share with equity investors. To take advantage of such a