What Equity really is

July 2026

Equity means ownership, and understanding its nuance is powerful.
In a startup setting, you'll hear people saying 'I gave up x% equity of my company for y million dollars.' If your company was a cake and you gave up 25% of it, you can imagine cutting a slice one-fourth the size of the cake and giving it to someone else. That includes everything that comes with the cake - assets, future cash flow, the company jet-plane, minus the liabilities.

You also have personal equity - which again is what you own: your assets minus liabilities, plus cash/black money that you stuff under your mattress, etc.

Similar to equity is debt. Equity means ownership, and debt means borrowed money. Both debt and equity are ways to surface money. For debt, you borrow money from somewhere like a bank, and you pay interest over time. The interest rate you get is decided by the base rate set by the country and your credibility.

Here's what they don't tell you - equity is really expensive. In private markets, your equity can easily compound around 15-20% year-on-year. When investors give money to funds, VCs, venture capital, private equity, that is often what they expect as the baseline. Here's the stats.

Let me elaborate. Say you have $100k in the bank. That is your equity, and the job is to make that equity compound at a very high rate. Maybe this sounds preposterous. You will say - there is no way - that is too high and unrealistic. But the private-capital world really does think in these hurdle rates.

Now you could say, the people doing it have insider knowledge. And you would be directionally right - not necessarily illegal insider information, but legal information edge: research, access, contacts, data, expert networks, and leverage.

For example, single-stock retail investing - meaning you start trading on Robinhood - is like sports betting. You look at Figma's stock or SpaceX stock and invest because you speculate it is a great idea based on a vibe? Or maybe even you did your research and read the quarterly earnings. You're at a significant disadvantage. The people investing intensely research the companies. They may know the CEOs, suppliers, customers, competitors, market structure, and business deeply. They set the tone for the market. When you're not tapped in, you're playing with worse cards.

Their money compounds. When you start growing substantial wealth, you get leverage and access to people and networks that know people. The pretense that maxxing out your Roth IRA and 401k is automatically the optimal move has never really made sense to me. Past the employer match, you are locking money into assets you do not control. You lose a significant edge on the compounding interest of your equity.

So now let us say you need to buy a car. The car will cost you $20k. Should you:

Pay it all at once.
Pay in installments at a premium, i.e. $1k per month for 22 months.

If you pick #1, you pay the $20k upfront. No debt, no liability, no interest. But if you pick #2, you pay $2k more, i.e. a 10% total premium. The reason you would pick #2 as a no brainer is because the $20k you would have paid can keep compounding elsewhere, while the debt has a fixed cost. So there is a massive arbitrage here if your alternative return is real. You would be losing money by using your own money because of the unrealized opportunity cost.

We've been taught growing up to never take loans, and we've heard horror stories of people taking loans and then it compounds and they can't complain and the loan shark will have their arm cut off and their house seized etc. And these aren't wrong. If you have to buy a car, or take a student loan, or even start a business, you should be very very careful about going into debt, because compound interest is a double edged sword. If you do not have collateral, liquidity, and payment safety, the fixed payments can corner you.

But what about when you do have money? Since your equity can grow faster than debt, you would rather finance debt against your equity.

In fact, there's a principle called Buy, Borrow, Die, where you buy assets that grow (equity), borrow money against them for pretty much everything instead of selling your equity, then when you die your heirs may inherit the assets with a stepped-up basis under current U.S. tax rules. That means they don't pay tax on your gains...

Seek equity then wield it.