Equity is actually the most expensive form of capital (measured by an investor's required return on capital). If a startup could raise debt financing, that would no doubt be preferable. However that's quasi-impossible with no revenue. I do agree with the other parts of this answer though.
Minimum rate of return is only one measure of cost. If we look at cash flows, the story is much different. Startups are usually cash-constrained, and equity financing is a way to raise cash without negatively impacting future prospects. Debt financing causes a drag on a company's cash flows and reduces flexibility, since now the company must divert a portion of its cash flow to interest payments. For a young company with low revenues and no profits, and thus unable to make tax deductions on interest, debt financing is actually a highly unattractive proposition.
Not true. If a startup could access debt but future uncertainty about its cash flows (say between series A and Series B) combined with the cash pay requirements for such cash flow (likely 18%) make the debt vs equity calculation not as straight forward as it seems.
