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I understand that debt can be distressful, and thus might even make the entrepreneur less productive. But having a side job is distressful too. If I had to cho

by cool-RR 18y ago

I understand that debt can be distressful, and thus might even make the entrepreneur less productive. But having a side job is distressful too. If I had to choose between having debt, and working side jobs like I do now, I would choose the debt. I understand that you would have chosen the side job. I guess the question is, are there enough people who would have chosen the debt? As for why I would choose the debt: I know at >99% that I could pay it. Therefore it will hardly distress me. Even if my life would turn out to be a total failure I could still get some coding job at a big company, take a separate loan from the bank, and pay it all off in a few years. It would suck, but for a worst case scenario it's not that bad.

jey 18y ago
"But having a side job is distressful too." If people aren't willing to give you cash for equity, it's probably a bad idea for a company and you should switch projects. (It's unlikely that you're the one in 100,000 entrepreneur who has a brilliant idea others just can't see the brilliance of.) Otherwise I don't think there's much of a good argument for turning down equity financing for a high-risk venture. It just makes a lot of sense economically: your biggest asset as a poor entrepreneur is your time and effort, and you need some capital to make your project happen. Investors have a lot of capital, but only a finite amount of time/effort to do things with it. So it's a fair trade: you put in time/effort, and the investor puts in money. If you just finance everything with debt, you end up having to incur both downsides of losing time and money -- and the downside of losing $100k in capital is a lot worse for you than for the rich investor. If the project fails, you'll have to spend time/effort to repay the $100k instead of just moving on to the next project.
- cool-RR 18y ago
  jey, I think we sort of lost each other. I have nothing against equity financing.
  - jey 18y ago
    Sorry, my main point got lost in my comment: I can't see the argument in favor of debt financing for a startup.
    - cool-RR 18y ago
      I didn't suggest debt financing for a start-up. I suggest debt for funding the entrepreneur's living expenses. I agree that if the entrepreneur actually starts a start-up proper, he would do best by financing it using equity. But most entrepreneurish activity is not a start-up proper - Just little things you try and that sometimes evolve into big projects. It's hard to sell equity out of those.
nostrademons 18y ago
You know you can get credit cards, right? If you're willing to pay 20% interest, it's not hard to find 4-5 companies willing to give you cards. (Well, perhaps not in this economy, but as of 6 months ago...) That's the problem I see with this idea: as soon as you start taking debt instead of equity, your competition changes. And there're lots of people already willing to give you money at 20% interest, even if your qualifications aren't stellar. Besides credit cards, you could just go to Prosper.com. BTW, I'd be far, far more worried about taking on $100k of debt than you seem to be. Companies fail for all sorts of reasons, and while I won't exactly say that they're beyond the control of founders (mine failed do to my own stupidity), they are often beyond the ability of founders to predict when they begin their venture. And while I was lucky enough to get a job at Google afterwards, it's important to point out that the first few firms to offer me jobs weren't all that great, and it was only because I had cash in the bank that I could afford to wait them out until BigCo Coding Job came through.
- vaksel 18y ago
  precisely, I got a $30K credit card at 0% apr for a year and a half not so long ago. And I get other offers like that all the time.

by cool-RR 18y ago

jey 18y ago

"But having a side job is distressful too." If people aren't willing to give you cash for equity, it's probably a bad idea for a company and you should switch projects. (It's unlikely that you're the one in 100,000 entrepreneur who has a brilliant idea others just can't see the brilliance of.) Otherwise I don't think there's much of a good argument for turning down equity financing for a high-risk venture. It just makes a lot of sense economically: your biggest asset as a poor entrepreneur is your time and effort, and you need some capital to make your project happen. Investors have a lot of capital, but only a finite amount of time/effort to do things with it. So it's a fair trade: you put in time/effort, and the investor puts in money. If you just finance everything with debt, you end up having to incur both downsides of losing time and money -- and the downside of losing $100k in capital is a lot worse for you than for the rich investor. If the project fails, you'll have to spend time/effort to repay the $100k instead of just moving on to the next project.

cool-RR 18y ago
jey, I think we sort of lost each other. I have nothing against equity financing.
- jey 18y ago
  Sorry, my main point got lost in my comment: I can't see the argument in favor of debt financing for a startup.
  - cool-RR 18y ago
    I didn't suggest debt financing for a start-up. I suggest debt for funding the entrepreneur's living expenses. I agree that if the entrepreneur actually starts a start-up proper, he would do best by financing it using equity. But most entrepreneurish activity is not a start-up proper - Just little things you try and that sometimes evolve into big projects. It's hard to sell equity out of those.

nostrademons 18y ago

You know you can get credit cards, right? If you're willing to pay 20% interest, it's not hard to find 4-5 companies willing to give you cards. (Well, perhaps not in this economy, but as of 6 months ago...) That's the problem I see with this idea: as soon as you start taking debt instead of equity, your competition changes. And there're lots of people already willing to give you money at 20% interest, even if your qualifications aren't stellar. Besides credit cards, you could just go to Prosper.com. BTW, I'd be far, far more worried about taking on $100k of debt than you seem to be. Companies fail for all sorts of reasons, and while I won't exactly say that they're beyond the control of founders (mine failed do to my own stupidity), they are often beyond the ability of founders to predict when they begin their venture. And while I was lucky enough to get a job at Google afterwards, it's important to point out that the first few firms to offer me jobs weren't all that great, and it was only because I had cash in the bank that I could afford to wait them out until BigCo Coding Job came through.

vaksel 18y ago
precisely, I got a $30K credit card at 0% apr for a year and a half not so long ago. And I get other offers like that all the time.