4 ms·

Do disputes over some N$10k of leftover funding tend to be more messy than disputes over some N$10k of excess debt from founders maxing out their credit cards?

Do disputes over some N$10k of leftover funding tend to be more messy than disputes over some N$10k of excess debt from founders maxing out their credit cards? Is it more common for startups to close with funds remaining, rather than with personal debts of the founders? I’m somewhat surprised that this would be a common scenario; I would have thought that founders would tend to pursue the company (possibly with some pivots) until money ran out.

pg 14y ago
The $150k was a problem when founders fell out. When that happens there's usually still money left.
- 001sky 14y ago
  Not to beg the questions, but why are they fighting over money loaned to them?
  - sjg007 14y ago
    It's not a loan, it is the remainder of the investment.
    - tptacek 14y ago
      Convertible notes are technically debt, and involve a commitment to repay. But the distinction is academic; the debt is a contract liability between the startup and its investors, and if the startup fails, there's nobody to repay. You can't take a startup convertible note investment and use it to buy Porsches for the same reason you can't do that with an equity investment: it's fraud, and your shareholders/creditors will sue you personally. One imagines the "founder fight" scenario Graham keeps alluding to is a startup that any outside can see has failed, but the founders can't; people are fighting over the right to continue being paid to work without a boss for X more months. If you're a founder in this situation, you should know that this is probably the dumbest conceivable fight to get into. Your time is simply much more valuable than a few tens of thousands of dollars. More importantly, any game-changing idea you come up with after the team crackup is now encumbered by the original investors/creditors. Why would you want that? Get out as quickly and cleanly as you can and start over with a clean slate.
  - deleted 14y ago
    [deleted]

pg 14y ago

The $150k was a problem when founders fell out. When that happens there's usually still money left.

001sky 14y ago
Not to beg the questions, but why are they fighting over money loaned to them?
- sjg007 14y ago
  It's not a loan, it is the remainder of the investment.
  - tptacek 14y ago
    Convertible notes are technically debt, and involve a commitment to repay. But the distinction is academic; the debt is a contract liability between the startup and its investors, and if the startup fails, there's nobody to repay. You can't take a startup convertible note investment and use it to buy Porsches for the same reason you can't do that with an equity investment: it's fraud, and your shareholders/creditors will sue you personally. One imagines the "founder fight" scenario Graham keeps alluding to is a startup that any outside can see has failed, but the founders can't; people are fighting over the right to continue being paid to work without a boss for X more months. If you're a founder in this situation, you should know that this is probably the dumbest conceivable fight to get into. Your time is simply much more valuable than a few tens of thousands of dollars. More importantly, any game-changing idea you come up with after the team crackup is now encumbered by the original investors/creditors. Why would you want that? Get out as quickly and cleanly as you can and start over with a clean slate.
- deleted 14y ago
  [deleted]