Should you raise debt or equity?

I was sort of surprised the first time I learned that anyone would give you financing for debt. Even at a 20% discount rate, it seems like a successful startup should be increasing their valuation by a lot more than 20% between rounds.<p>Conversely, debt seems like a really bad deal for investors. They only get a 20% discount when the company goes into Series A financing, in return for the risk that the company will go belly up before then and they lose it all.<p>How does this square with the (admittedly problematic) conventional wisdom that investors look for a ~10x return on their money and expect ~1/10th of companies to fail?

Funding startups with debt is extremely risky, unless it's convertible debt, which is just a hacked form of equity.<p>The reason is that a typical loan will be secured by the company's stock. If you fail to repay it when it's due, your company will be forfeited to the lender. It's bad to make deals like this in a situation where things can change so fast. Viaweb was almost destroyed when we couldn't repay a bridge loan that we'd taken in order to see us through an acquisition that then didn't happen.