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Why didn’t you take the loans out of interest?

• muzani 4y ago
  1. Religious reasons. Bank loans were usury, VC investment was not. Probably a legitimate red flag, but it's why I got into it. 2. Primary goal was runway, or rather paying our salaries. Loans make it... complex. We'd have accelerated growth, but it would still be in that spot of not feeling right about paying our own salaries. If we had to take a job and do it on the side, it would basically be game over as we couldn't have the focus to grow the startup. 3. Loans put a lot of pressure on profitability. For context, we were a recipe app that sold ingredients. First stage has us take about 3-7% margin, but it was all handled by a partner. Second stage had a 7-30% margin, ops handled internally. We were going for manufacturing of ingredients at a 50%-90% margin. However, that would have locked us far away from being software based. We'd have to start selling to pharmacies and such to make up for the minimum order. That kind of messes up the company DNA. The ideal end goal for a startup isn't really to become FAANG. That has its prestige, you call yourself a billionaire, and yet all your money is tied up in stocks and you can't really spend it. The ideal end goal is to make something valued at a few billions and sell it to some company that makes like $10B/quarter. Most of those large companies don't have the DNA to hire people and get high growth. So the irony was that taking loans would make us less attractive to VCs. We'd be a small-medium business group, which is less ideal than just taking a job at a Fortune 500 or something.
  • quickthrower2 4y ago
    Hey thanks for the detailed reply that is very interesting. I think they are excellent reasons not to take a loan.