The Control You Give Up May Not Be in the Cap Table

Businesses often compare funding by valuation or interest rate, then discover that the real price was hidden in collateral, covenants, currency risk or control rights. From BYJU’S to Sun King, the cases show that capital is a contract for future bad days, not merely a cash injection for good ones.

In 2023, lenders took control of BYJU’S Alpha, the borrower connected to Think & Learn, the Indian education company behind BYJU’S.

That sentence can sound like a financial footnote. It was not. A business that had borrowed $1.2 billion in November 2021 had entered a structure in which its own shares were pledged, and the collateral agent could replace its director after default. The Delaware court record found defaults that included failures to deliver required financial statements; lenders accelerated the loan and took control.

For the people trying to run the company, this is the operational stake of a financing document. Reporting stops being a back-office chore. It can become the trigger for a lender to call in the debt and assume control of the borrower.

India’s Supreme Court later recorded the facility and Think & Learn’s guarantee in its October 2024 judgment. But the crucial evidence sits earlier in the Delaware proceedings: defaults, acceleration and the lender takeover were not abstract risks buried in legal drafting. They happened.

The cash was real. So was the ownership, at least on paper. The control was conditional.

The BYJU’S Alpha loan showed how pledged shares can turn a debt default into a control transfer. Photo: Magda Ehlers / Pexels, Pexels licence (free commercial use).

That is the question hidden inside the search query, “what does it mean to raise capital?” It means more than persuading somebody to transfer money. It means agreeing, in advance, who gets what if the plan works, who gets paid first if it does not, and who gets to make decisions when the business is under strain.

Most founders picture a valuation, a pitch deck and a number in the bank account. Most lenders see something else: a claim on future cash and a set of protections if that future arrives late.

The myth of the cheapest money

The conventional advice is simple enough: take the lowest interest rate, or sell the smallest percentage of the company. It is a useful starting point. It is also where most people stop looking.

An equity investor supplies money without a contractual repayment date. In return, they receive an upside claim through ownership, and may receive board seats, voting rights or the right to block certain decisions. A liquidation preference determines how investors are paid before ordinary shareholders if the company is sold or wound up.

Debt leaves the shares where they are. Yet it comes with fixed repayments, a maturity date and often security over assets. Covenants are promises that restrict what a borrower can do, such as taking on more debt, selling assets or paying dividends. Breach them, and a lender may demand action long before the business technically runs out of cash.

Steven Kaplan and Per Strömberg examined 213 venture-capital contracts for the National Bureau of Economic Research and found that cash-flow, voting, board and liquidation rights were allocated independently. In poor performance, control could transfer fully to investors.

The important point is not that one form of capital is virtuous and another sinister. It is that each is a different bargain.

Cheap money is usually cheap for a reason. The funder has been paid elsewhere: through priority, collateral, warrants, revenue capture, a guarantee, a veto or the right to act when performance deteriorates.

GI Network’s view: Do not ask, “What will this money cost?” Ask, “Which version of our future is this contract designed to control?”

The six things every funder is buying

Imagine you are choosing between two offers for the same amount of cash. One has a low rate. The other asks for equity. Neither can be judged from the headline alone.

Every proposal contains some combination of six claims: a claim on cash flow, upside, assets, control, time and operating freedom.

Cash flow: who receives money first, and whether payments are fixed, tied to revenue or only made after profits exist.

Upside: who shares in the value created if the company succeeds.

Assets: which equipment, receivables, shares or other property can be taken or controlled after a default.

Control: who can appoint directors, veto decisions or force a change in direction.

Time: when the money must be repaid, refinanced or converted.

Freedom: what the company can no longer do without permission.

Here is a worked, illustrative comparison. A founder needs £1 million to reach a product milestone.

| Six claims | Offer A: debt | Offer B: equity |

|---|---|---|

| Cash flow | Fixed repayments begin before the milestone is reached. | No contractual repayment from operating cash. |

| Upside | Lender does not share ordinary upside, though it may receive warrants. | Investor owns an agreed share of future value. |

| Assets | Receivables are pledged as security. | No asset security is required. |

| Control | Missed reporting or payment can trigger lender remedies. | Board or veto rights may apply, especially if performance weakens. |

| Time | The £1 million must be repaid or refinanced at maturity. | Capital remains in the business, but ownership is permanently shared. |

| Freedom | Further borrowing, asset sales or dividends may require consent. | Certain major decisions may require investor approval. |

The table does not tell the founder which offer to take. That would be too neat. It tells them what question comes first: can the business survive Offer A if the milestone is six months late, or is the permanent ownership cost in Offer B the safer price for uncertainty?

Put the cases in India, Kenya, Jordan, Britain and the United States side by side and a pattern appears that none of the individual financing announcements quite says aloud: capital does not merely fund a business plan. It decides how much room that plan has to be wrong.

That room is often the most valuable thing a young company owns.

When debt became a control transaction

BYJU’S is the bluntest example. The assumption behind the $1.2 billion senior term loan was familiar: debt would preserve founder ownership. Yet the pledge of BYJU’S Alpha shares and the lender remedies meant that a reporting failure could become a control event.

The lesson is not “never borrow”. It is sharper than that. Debt works best when a business can reliably service it and meet its reporting obligations through the period the lender cares about. It is a poor substitute for permanent capital when the route to cash generation is uncertain.

That distinction matters especially for venture debt, borrowing used to extend a company’s runway between equity rounds or until a sale or milestone. A March 2024 National Bureau of Economic Research paper, alongside October 2024 research by Mann and Gonzalez-Uribe, describes it as bridge finance: funding that expects a later equity round, acquisition or milestone to repay it. It is not permanent capital wearing a cheaper outfit.

Founders tempted by a fast bridge should read the terms that decide control and cash, not price before comparing rates. The next investor may not just examine the amount borrowed. They may ask what happens if the debt is not repaid on schedule.

Sun King made the currency boring

Sun King, a company providing pay-as-you-go solar products and smartphones to customers in Kenya, faced a different problem. Its customers paid in Kenyan shillings. A dollar loan might have carried an attractive rate, but the business would have owed dollars while collecting shillings.

That is not a technical nuisance. It is a mismatch. If the shilling weakens, local customer payments buy fewer dollars, even if the company is doing everything else right.

Sun King financed its customer receivables through a Kenyan-shilling-denominated $130 million securitisation in 2023. The stated structure was entirely in Kenyan shillings and backed by those future customer repayments. FMO, the Dutch development bank, said the securitisation financed receivables without constraining Sun King’s ordinary balance-sheet borrowing capacity. Norfund, the Norwegian development finance institution, separately stated that an earlier dollar loan had been refinanced into Kenyan shillings because customers paid locally.

On 28 July 2025, Sun King followed with a $156 million, KES20.1 billion transaction expected to finance about 1.4 million solar products and smartphones, according to Citi.

Sun King matched Kenyan-shilling customer payments with local-currency funding rather than chasing a cheaper-looking dollar loan. Photo: anonymous / Wikimedia Commons, Public domain.

What surprised us was not that local-currency funding existed. It was how clearly the structure answered the real commercial question: what pays this debt back, and in what currency?

Dollar borrowing is not automatically reckless for a company earning local currency. It can still be sensible where the company has a dependable source of dollar cash to meet the obligation. That is simply the same matching rule in reverse. But where repayment comes from shilling-paying customers, the apparently cheaper dollar loan introduces a second bet: not only that customers will pay, but that their payments will still buy enough dollars.

The nominally lower dollar rate could have been the more expensive choice if currency movements damaged repayment capacity. Sun King did not just raise cash. It aligned the source of repayment, the collateral and the currency.

That is how capital raising works when it is done well. The funding is shaped around the business’s actual cash machine, not around the funder’s most attractive brochure.

An airport had time. A rental-car fleet did not.

Jordan’s Queen Alia International Airport offers the long-life version of the same principle. In May 2007, Jordan awarded Airport International Group, the company operating the airport, a 25-year concession. The roughly $680 million financing combined $161 million of equity, $347 million of senior debt, $40 million of subordinated debt and $134 million of internal cash generation.

The terminal opened in March 2013. Stronger-than-forecast traffic supported a further $68 million expansion financing in 2014, according to IFC and the World Bank.

Its debt was intended to be repaid from airport tariffs, the prices the airport was allowed to charge users, rather than from Jordan’s general corporate cash flow. The construction asset, the 25-year concession and the user-fee revenues were made to mature together.

Queen Alia’s long concession and tariff income gave long-tenor project debt a repayment base. Photo: Death Star Central / Wikimedia Commons, CC BY-SA 4.0.

Here is the twist: ring-fencing the project did not mean Jordan kept all the economics. Under the concession, 54.6% of gross revenue was surrendered. The financing fit the asset, but it still had a price.

Now compare Hertz, the American vehicle-rental company. When it entered bankruptcy in May 2020, most of its roughly $15 billion of debt came through asset-backed programmes. Hertz’s 2021 SEC filing and analysis in the University of Chicago Law Review describe the mechanism clearly: vehicles were isolated as collateral, helping lower interest costs, but the structure required payments when fleet values fell.

Following default, vehicle-sale proceeds had to repay secured notes. They could not be used to fund operations or buy replacement cars. Lenders could direct liquidation.

The cars were liquid. That did not make Hertz flexible. It made the lenders protected.

Asset-backed finance can be a sensible tool for equipment or receivables with dependable value and clear resale markets. But it creates a creditor-controlled waterfall: when stress arrives, the proceeds go where the contract says, not necessarily where the operating business needs them most. If your largest contract or asset pool is central to a borrowing plan, the reason lenders can still reject the business is often buried in that difference.

Predictability is not the same as resilience

Thames Water, the English water utility, shows another error in the “cheap debt” story. Customer bills appear predictable. Long-term fixed-rate borrowing had been prudent for much of the sector, Ofwat said in July 2023. But Ofwat also concluded that Thames Water had borrowed too much.

By 31 March 2025, its securitisation group reported £17.72 billion of covenant-basis net debt. Statutory net debt reached £17.6 billion six months later. Credit downgrades breached licence requirements in July 2024. Ofwat placed the company in enhanced turnaround oversight, and an April 2025 rule activated earlier cash lock-up when ratings deteriorated, restricting dividends and increasing regulatory control.

Thames Water shows that predictable revenues cannot replace a sufficient equity buffer when shocks and investment needs rise. Photo: Russss / Wikimedia Commons, CC BY-SA 4.0.

The false comfort was not that water customers would disappear. It was that predictable revenue could absorb any level of borrowing while the company faced large and uncertain capital expenditure.

Debt is not only a bet on revenue. It is a bet that revenue will remain available after operating costs, regulation, inflation and investment needs have all taken their share.

What founders should do before naming a round size

“How much capital should I raise?” is usually the wrong first question. Start with the next financeable milestone: the event that makes the business more valuable, more predictable or more capable of supporting a different type of funding.

For a founder, that might be product completion, a customer-repayment base, a manufacturing milestone or dependable operating cash flow. Calculate the cash needed to reach it, add a contingency, and leave enough runway to raise the next round before urgency destroys negotiating power.

Then run every proposed term sheet through the Six-Claim Test. Do not merely mark a term as good or bad. Ask whether the claim is payable from the cash flow, asset life and currency the company actually has.

Use a downside cash-flow version, not just a base case. Take an illustrative company expecting £100,000 of monthly customer cash receipts and considering debt with a £30,000 monthly repayment. If receipts arrive 30% lower for six months, cash receipts become £70,000. The debt still takes £30,000 first, leaving £40,000 for payroll, suppliers, tax and everything needed to reach the milestone. If those operating needs exceed £40,000, the founder has not found cheap capital. They have created a countdown to breach, refinancing or a distressed equity round.

Run the same exercise against all six claims. If revenue is late, who gets paid? If the next round slips, what happens at maturity? If the currency moves, does the repayment burden change? If the covenant is breached, what assets, decisions or shares become exposed?

Do not raise a larger amount merely because capital is available. More debt increases fixed claims. More equity transfers more upside. Convertible instruments postpone the ownership calculation but do not erase it: valuation caps and discounts can make the eventual dilution uncertain.

A practical process is to map the six claims before beginning outreach, test whether cash flows can carry them under stress, and identify the funders whose risk appetite fits the milestone. What funders expect before they look at anything is usually evidence that the company understands its own downside.

What experienced investors are really checking

For investors, the same map explains why terms can feel severe. A lender wants protection because it has limited upside and must be repaid first. An equity investor can tolerate uncertainty because it participates in success, but will seek rights to protect against poor performance.

Experienced investors are not merely asking whether a business can grow. They are asking whether its proposed capital structure leaves it able to survive being wrong.

They look for the pressure points before they become defaults: repayments that arrive before the revenue base is dependable; assets pledged to one lender that cannot then support other borrowing; dollar debt against local-currency receipts; and covenants that turn a modest miss into a refinancing crisis.

This is where first-time founders can misread investor caution. The investor is not always questioning the ambition. Often, they are questioning whether the existing claims on the company leave enough oxygen for that ambition to work.

GI Network would begin this work before investor outreach: identify the structural weaknesses in the proposed funding, stress-test repayment and currency assumptions, map the six claims in each term sheet, and rehearse the questions an investment committee or credit team will ask. The aim is not to make a company look fundable at any cost. It is to stop it accepting capital that makes the next milestone harder to reach.

The Six-Claim Test

Before accepting any offer, write six answers on one page:

1. 1.Cash: what must be paid, when, and before whom?
2. 2.Upside: what ownership or future value is being permanently shared?
3. 3.Assets: what can the funder seize, control or divert after trouble begins?
4. 4.Control: who can block decisions or take over when performance slips?
5. 5.Time: what must happen before maturity, conversion or refinancing?
6. 6.Freedom: which ordinary decisions now require permission?

Use the test twice: once for the plan going well, and once for the milestone arriving late. In the late case, reduce expected receipts, hold fixed repayments constant, and see what remains for operating the business. BYJU’S shows why the second version matters. Sun King shows what good matching looks like. Hertz shows why collateral that lowers cost can still drain the operating business in distress.

If the answers fit the business’s cash flows, asset life, currency and next milestone, the capital may be right. If they do not, a low interest rate or flattering valuation is just a distraction.

Raising capital is not raising cash.

It is choosing which future you are willing to give away.