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We know students are taking their own lives because of the debt they think they can never pay back[1]. Start-up founders are in a similar position, indebted to

We know students are taking their own lives because of the debt they think they can never pay back[1]. Start-up founders are in a similar position, indebted to their investors[2] and under pressure to deliver a return. Do start-up incubators like YCombinator and 500 Startups provide advice and counselling to founders, especially younger entrepreneurs just out of college? [1] http://www.huffingtonpost.com/c-cryn-johannsen/student-loan-debt-suicides_b_1638972.html http://www.huffingtonpost.com/c-cryn-johannsen/student-loan-... EDIT: Added to clarify [2] A debt of gratitude, where there is a moral obligation to repay investors for their help and funds.

Retric 14y ago
Unlike student loans you can always declare bankruptcy if startup related debt is unmanageable so it's only really an issue for older founders who have actual savings.
- tptacek 14y ago
  None of that debt will be from your investors, and, once you have investors, the norm is that you'll be taking a salary as well. "Funded startup founder" is an immensely privileged position from which to operate and not remotely comparable to that of a 30 year old who chose the wrong major and faces six figures of non-dischargeable debt.
tptacek 14y ago
Startup funding is structured as equity, not loans. The situations are not at all comparable. You can virtually always walk away from a failed startup.
- deleted 14y ago
  [deleted]
- chimi 14y ago
  That perspective varies by the individual. I know people who have taken money and consider themselves to owe their investors a return. The depression experienced from a lack of ability to deliver that return can be extreme. There are also lots of funding deals that are loans as well.
  - tptacek 14y ago
    There are not lots of funding deals with venture capitalists that are structured as loans in the sense that you & I think of them. Probably none. You do not owe your investors a return. Anybody who thinks they do doesn't understand how startup investments works, or has taken investment on false pretenses. No early startup founder is in a position to promise a return to anyone.
    - chimi 14y ago
      Do you think your semantic debate strategy will save any suicidal lives?
- BjoernKW 14y ago
  This might be true for Silicon Valley but for most startups elsewhere this certainly isn't the case. In most places equity simply isn't as readily available so you basically have no choice but to take out a loan if you want to found a company that isn't cash flow positive from day one. Besides, founders - at least where I live - are required to act as guarantors for such loans. So, no in most places you can't just walk away from a failed startup.
  - tptacek 14y ago
    If by "startup" we mean "technology company" I feel comfortable arguing that if "most" companies aren't in Silicon Valley (in fact they probably are), they are at least mostly in the US, where equity financing for startups is the rule, not the exception. In the US, it is very difficult to get bank debt financing for startups, for the same reason that service providers price your imminent demise into their contracts.
    - BjoernKW 14y ago
      'Startup' doesn't necessarily imply 'technology company'. For example, some run-of-the-mill restaurant certainly isn't a startup in my opinion but a brick and mortar store offering a unique product or concept could very well be considered a startup. One could in fact argue that the most influential tech companies are located in Silicon Valley. However, in terms of sheer numbers I daresay most startups are actually founded outside the US. Just consider the huge amount of medium-sized enterprise IT companies that offer some essential service or product that no one probably has ever heard of. I'd certainly consider those to be startups (when they were founded, that is), not of the sexiest variety, but startups nonetheless.
      - tptacek 14y ago
        Sure. We can just stipulate though that by "startup" I mean "US technology company".
  - csense 14y ago
    The comparison between personal-debt-funded education and personal-debt-funded failed startups still makes the latter look like a better deal. I believe educational loans in the US can't be discharged by personal bankruptcy. So if you go into debt personally to fund your startup, all you can lose is everything you have. OTOH if you borrow money to pay for college, your creditors can take everything you have -- and money you haven't earned yet. I'd never fund a startup with personal debt. Although with mortgage tax breaks and the interest rate climate the way it is, it is actually kinda tempting...
rdouble 14y ago
Startup founders are not "indebted" to their investors.
- wpietri 14y ago
  Hi! Founder here. I think we indeed are indebted to our investors. Often financially, when the investment comes in the form of a convertible note. But more importantly, there's a social debt. These are people who bet on us when few others would. They provide advice, support, and connections. Sure, there's a financial aspect to this, and it's not like founders personally guarantee the company's books. But Silicon Valley doesn't run on money; it runs on people. And on their relationships.
  - rdouble 14y ago
    Right, but you can always just walk away from it all. It's not the same as a student loan.
    - chimi 14y ago
      You can, but some people have a big conscience and want to deliver on the expectations people have of them, so some people can't just "walk away." It's those people who are suicidal in failed startup scenarios.
      - tptacek 14y ago
        Do we have a lot of evidence that startup failure is actually a suicide trigger? And, more so than student loan debt, or job termination, or flunking out of school? I worry a little about enshrining this bit of conventional wisdom. Startup founders feel pretty exceptional as it is without adding the idea that they carry the weight of the world.
    - bitcartel 14y ago
      Sure, you can walk away from a professionally managed fund, hopefully with your name intact, but I bet it's not so easy to walk away from friends, family, and small angel investors who believed in you. The mental burden of failure, of disappointing those closest to you, must weigh heavy.
mattmaroon 14y ago
Well, I've never done either, but if you gave me a choice between having a startup fail and coming out of college with $100k in debt and no job prospects, I'd probably choose startup failure. It'd suck, but, assuming you did things the right way, you don't personally owe anybody a dollar. When you raise money you take on certain ethical obligations. I owe it to my investors to try my damnedest to make the company succeed. I owe it to them to try to give them a good return on their money. I do not owe it to them to reimburse them the money if I fail. At all. There's no debt of gratitude. If my startup dies and I go down swinging, then I'll know I gave it my best shot. That will suck, but they knew that was the risk going in. I won't lose sleep feeling like I ripped them off, just as I won't feel they ripped me off if I succeed and write them a check for millions of dollars. (I'd actually be quite happy to do so.) Student loans, on the other hand, leave you saddled with debt that's hard to get rid of even with bankruptcy. There are a lot of people graduating with law degrees right now who are screwed. I imagine startup failure is painful, but not going to ruin your standard of living for the next 10+ years. I don't know the particulars of this case. Maybe Jody's depression made him unable to live with mistakes he (or someone else on his team) made in good faith. Maybe he did something unethical and couldn't live with being found out. It's tragic either way.
- tptacek 14y ago
  Great comment. But you don't have an ethical obligation to be heroic in your startup. You are obligated to be honest when the investor makes their decision to back you, you're obliged not to be negligent in your execution, and you're obliged not to misuse their funds. But your kids, as it were, come first.
  - bitcartel 14y ago
    Sure, that's a rational way to look at things, but human emotion is also part of the equation. It may be easy to walk away from professional fund managers, but friends and family and small angel investors who believed in you? Knowing that a social debt can never be repaid, sadly for some people, may be too heavy a burden to carry.

Retric 14y ago

Unlike student loans you can always declare bankruptcy if startup related debt is unmanageable so it's only really an issue for older founders who have actual savings.

tptacek 14y ago
None of that debt will be from your investors, and, once you have investors, the norm is that you'll be taking a salary as well. "Funded startup founder" is an immensely privileged position from which to operate and not remotely comparable to that of a 30 year old who chose the wrong major and faces six figures of non-dischargeable debt.

tptacek 14y ago

Startup funding is structured as equity, not loans. The situations are not at all comparable. You can virtually always walk away from a failed startup.

deleted 14y ago
[deleted]
chimi 14y ago
That perspective varies by the individual. I know people who have taken money and consider themselves to owe their investors a return. The depression experienced from a lack of ability to deliver that return can be extreme. There are also lots of funding deals that are loans as well.
- tptacek 14y ago
  There are not lots of funding deals with venture capitalists that are structured as loans in the sense that you & I think of them. Probably none. You do not owe your investors a return. Anybody who thinks they do doesn't understand how startup investments works, or has taken investment on false pretenses. No early startup founder is in a position to promise a return to anyone.
  - chimi 14y ago
    Do you think your semantic debate strategy will save any suicidal lives?
BjoernKW 14y ago
This might be true for Silicon Valley but for most startups elsewhere this certainly isn't the case. In most places equity simply isn't as readily available so you basically have no choice but to take out a loan if you want to found a company that isn't cash flow positive from day one. Besides, founders - at least where I live - are required to act as guarantors for such loans. So, no in most places you can't just walk away from a failed startup.
- tptacek 14y ago
  If by "startup" we mean "technology company" I feel comfortable arguing that if "most" companies aren't in Silicon Valley (in fact they probably are), they are at least mostly in the US, where equity financing for startups is the rule, not the exception. In the US, it is very difficult to get bank debt financing for startups, for the same reason that service providers price your imminent demise into their contracts.
  - BjoernKW 14y ago
    'Startup' doesn't necessarily imply 'technology company'. For example, some run-of-the-mill restaurant certainly isn't a startup in my opinion but a brick and mortar store offering a unique product or concept could very well be considered a startup. One could in fact argue that the most influential tech companies are located in Silicon Valley. However, in terms of sheer numbers I daresay most startups are actually founded outside the US. Just consider the huge amount of medium-sized enterprise IT companies that offer some essential service or product that no one probably has ever heard of. I'd certainly consider those to be startups (when they were founded, that is), not of the sexiest variety, but startups nonetheless.
    - tptacek 14y ago
      Sure. We can just stipulate though that by "startup" I mean "US technology company".
- csense 14y ago
  The comparison between personal-debt-funded education and personal-debt-funded failed startups still makes the latter look like a better deal. I believe educational loans in the US can't be discharged by personal bankruptcy. So if you go into debt personally to fund your startup, all you can lose is everything you have. OTOH if you borrow money to pay for college, your creditors can take everything you have -- and money you haven't earned yet. I'd never fund a startup with personal debt. Although with mortgage tax breaks and the interest rate climate the way it is, it is actually kinda tempting...

rdouble 14y ago

Startup founders are not "indebted" to their investors.

wpietri 14y ago
Hi! Founder here. I think we indeed are indebted to our investors. Often financially, when the investment comes in the form of a convertible note. But more importantly, there's a social debt. These are people who bet on us when few others would. They provide advice, support, and connections. Sure, there's a financial aspect to this, and it's not like founders personally guarantee the company's books. But Silicon Valley doesn't run on money; it runs on people. And on their relationships.
- rdouble 14y ago
  Right, but you can always just walk away from it all. It's not the same as a student loan.
  - chimi 14y ago
    You can, but some people have a big conscience and want to deliver on the expectations people have of them, so some people can't just "walk away." It's those people who are suicidal in failed startup scenarios.
    - tptacek 14y ago
      Do we have a lot of evidence that startup failure is actually a suicide trigger? And, more so than student loan debt, or job termination, or flunking out of school? I worry a little about enshrining this bit of conventional wisdom. Startup founders feel pretty exceptional as it is without adding the idea that they carry the weight of the world.
  - bitcartel 14y ago
    Sure, you can walk away from a professionally managed fund, hopefully with your name intact, but I bet it's not so easy to walk away from friends, family, and small angel investors who believed in you. The mental burden of failure, of disappointing those closest to you, must weigh heavy.

mattmaroon 14y ago

Well, I've never done either, but if you gave me a choice between having a startup fail and coming out of college with $100k in debt and no job prospects, I'd probably choose startup failure. It'd suck, but, assuming you did things the right way, you don't personally owe anybody a dollar. When you raise money you take on certain ethical obligations. I owe it to my investors to try my damnedest to make the company succeed. I owe it to them to try to give them a good return on their money. I do not owe it to them to reimburse them the money if I fail. At all. There's no debt of gratitude. If my startup dies and I go down swinging, then I'll know I gave it my best shot. That will suck, but they knew that was the risk going in. I won't lose sleep feeling like I ripped them off, just as I won't feel they ripped me off if I succeed and write them a check for millions of dollars. (I'd actually be quite happy to do so.) Student loans, on the other hand, leave you saddled with debt that's hard to get rid of even with bankruptcy. There are a lot of people graduating with law degrees right now who are screwed. I imagine startup failure is painful, but not going to ruin your standard of living for the next 10+ years. I don't know the particulars of this case. Maybe Jody's depression made him unable to live with mistakes he (or someone else on his team) made in good faith. Maybe he did something unethical and couldn't live with being found out. It's tragic either way.

tptacek 14y ago
Great comment. But you don't have an ethical obligation to be heroic in your startup. You are obligated to be honest when the investor makes their decision to back you, you're obliged not to be negligent in your execution, and you're obliged not to misuse their funds. But your kids, as it were, come first.
- bitcartel 14y ago
  Sure, that's a rational way to look at things, but human emotion is also part of the equation. It may be easy to walk away from professional fund managers, but friends and family and small angel investors who believed in you? Knowing that a social debt can never be repaid, sadly for some people, may be too heavy a burden to carry.