6 ms·

in the notes of this essay there is a strong statement about not funding startups with credit card debt. Just wondering if there is an acceptable limit of cc d

by Mistone 19y ago

in the notes of this essay there is a strong statement about not funding startups with credit card debt. Just wondering if there is an acceptable limit of cc debt to use to get from concept to prototype? Or if its all the same and just a bad idea. beyong YC and friends & fam, there are limited options for the small pop of cash that gives you the time required to work in your startup. So far at my company we have been very tightly spending on a cc, not incurred a lot of debt but still don't have the small cash cushion to ditch the day job and jump in full time. sorry for the tangent.

pchristensen 19y ago
It's very different if you have a day job, income, etc. I think he's saying "Don't work full time on a startup by living off of credit cards." I have credit cards with limits more than a YC investment, but if I lived off that and the startup failed, instead of starting fresh, I'd have a lot of money+interest to pay back.
nostrademons 19y ago
One way to think about CC debt: if you fund your startup with credit cards, you need to guarantee that you'll grow earnings by at least 20%/year, just to keep up with interest charges. If you can't do that, you're personally on the hook for any shortfall, and have to make it up yourself out of future job income (after compounding, no less). There're very few startups where revenues are certain enough to take this risk. Most likely, your startup will never make anything, and then credit card debt for a startup is no different than credit card debt for a spending spree. That's why startup founders are wary of debt financing. If you can guarantee that level of earnings growth (perhaps you have customers already lined up, and just need to deliver on a well-understood technical problem), then it can make sense.
sbraford 19y ago
I would suggest working part-time as a freelancer as another option. (i.e. if you can't get into YC)

by Mistone 19y ago

pchristensen 19y ago

It's very different if you have a day job, income, etc. I think he's saying "Don't work full time on a startup by living off of credit cards." I have credit cards with limits more than a YC investment, but if I lived off that and the startup failed, instead of starting fresh, I'd have a lot of money+interest to pay back.

nostrademons 19y ago

One way to think about CC debt: if you fund your startup with credit cards, you need to guarantee that you'll grow earnings by at least 20%/year, just to keep up with interest charges. If you can't do that, you're personally on the hook for any shortfall, and have to make it up yourself out of future job income (after compounding, no less). There're very few startups where revenues are certain enough to take this risk. Most likely, your startup will never make anything, and then credit card debt for a startup is no different than credit card debt for a spending spree. That's why startup founders are wary of debt financing. If you can guarantee that level of earnings growth (perhaps you have customers already lined up, and just need to deliver on a well-understood technical problem), then it can make sense.

sbraford 19y ago

I would suggest working part-time as a freelancer as another option. (i.e. if you can't get into YC)