In the Indian startup I hear of a new incubator/accelerator every few month. Of course, they don't give any money and yes they want equity. Its the hottest scam it seems these days.
Let’s mug a startup founder
51–60 of 80 posts
Re: Let’s mug a startup founder
#52I'm having a hard time understanding why they want the money back if they're taking so much equity. If the company is at all successful the 6% equity will be worth wayyy more than £20,000. If the company fails they get nothing, not even the loan repayment. I suppose it protects them against so-called "lifestyle businesses" that never have a big exit.
Supposedly it allows the money to be recycled back in to the fund. This might make sense if it was in the millions but as you said, it's a very small amount (in investment terms) so that argument seems strange.
Re: Let’s mug a startup founder
#53I am surprised they managed to get the loan via the Small Firms Enterprise Loan Guarentee scheme. I don't know any web based business that has succeeded yet, most bank managers authorise the loan as the guarantor provided you have enough equity yet in experience lack little web experience and equity in a property. I am citing from previous experience, when pitching a travel startup to a Natwest 'business' manager his…
We had the same experience with Natwest. Our events business was doing over £1m in revenue with them, for over three years - and they still turned us down. They seemed completely aware of a recurring revenue model. Insanely frustrating.
I just hopped on the web and Googled 'small business loan' and came across Lloyds. I filled out a random contact form and amazingly they got in touch. I had to prepare a traditional biz plan and present it. Because we bootstrapped the startup and revenues showed constant growth, and I was confident in my pitch, they got back to me next day and said they'd do it. Wasn't easy but it worked.
Re: Let’s mug a startup founder
#54Hi – I’m Mark Hales from Oxygen Accelerator. I just wanted to say we’re following all the discussions on here and it’s helpful to hear your opinions and advice based on your experiences. I just wanted to make a couple of points to clarify a few things. We intend to provide a fuller response once we’ve spent some time considering all the feedback.
First of all the loan we are talking about is a ‘soft’ loan to the businesses taking part – with no personal guarantees and will be interest free.
As part of the application process we’ll sit down with each team to understand their funding needs and will only ask for the loan to be repaid once / if this level of funding or more has been achieved, or they reach a level of profitability to support loan repayments, again we will agree this in advance but the key point here is that we will build in an agreed level of headroom with the founders.
This will not be a complicated loan agreement, we only want to have the money back to reinvest in the next round of entrepreneurs when its right for the business, i.e., there wont be any clever call options. Teams will be given full sight of this and we will encourage them to get advice before they sign up to anything.
Re: Let’s mug a startup founder
#55I don't get it, isn't the 6% basically the interest rate?
No, because if any of these startups make it big, it'll be 6% of a much larger amount (think $10,000,000+). $600,000 is a little more than the interest you'd pay on a $33,000 loan at 6% :)
Re: Let’s mug a startup founder
#56Earlier quoted context omitted.
I've seen loan-for-equity twice in real life, and both times it built profitable businesses. Though they were both older types of businesses with established business models that needed capital to get started, not technology. Anyways, yes, you should always read the terms on an important contract very carefully, and here's no different. Probably a bad deal if there's a personal guarantee on the loan. But assuming the…
Thanks for being the voice of reason lionhearted. It's a little to early to condemn this incubator. The rush to judgement does highlight the need to be totally transparent these days. If you fail to spell out your terms clearly you're going to get raked over the coals by some blogger. BTW. I don't see what's wrong with a personal guarantee. It's nice that you are willing to risk other peoples money, but I think you s…
The problem with a personal guarantee is that the lender will always take everything they possibly can, and a personal guarantee leaves no boundaries. It makes it impossible to start up without risking fundamentals of life like housing and transportation, and almost definitely leads to bankruptcy in case things go south. This is OK for some people in the 18-25 age range when they can just go move back in with Mom, but it doesn't work for people with families, people without a safety net, etc.
Your lender is not risking his house to loan your company money and you shouldn't risk your house either, especially if you have a family. It's not so easy to start over once you get married and have a couple of kids, and it's not worth risking getting thrown out on the street if it means your children are going to be sleeping in the gutter.
Re: Let’s mug a startup founder
#57Ryan, I assure you that in the US, a typical startup founder cannot walk into the bank and leave with an unsecured $163,000 loan. Businesses with many multiples of that in top-line revenue can't get that loan without personal liability.
I probably agree that 6% PLUS a $32k (zero-interest) loan is not a good deal.
But I don't even think 6% for ~$20k is a good deal for funding.
I don't think the comparison you're making here is fair. Calling it a "mugging" is a bit over the top. The people who mug startups are consultants and do-nothing executive hires.
Re: Let’s mug a startup founder
#58I'm having a hard time understanding why they want the money back if they're taking so much equity. If the company is at all successful the 6% equity will be worth wayyy more than £20,000. If the company fails they get nothing, not even the loan repayment. I suppose it protects them against so-called "lifestyle businesses" that never have a big exit.
Even with companies that have an exit, it might take years, during which the companies could well afford to pay back the money.
Re: Let’s mug a startup founder
#59Ryan, I assure you that in the US, a typical startup founder cannot walk into the bank and leave with an unsecured $163,000 loan. Businesses with many multiples of that in top-line revenue can't get that loan without personal liability. I probably agree that 6% PLUS a $32k (zero-interest) loan is not a good deal. But I don't even think 6% for ~$20k is a good deal for funding. I don't think the comparison you're makin…
The typical lean web startup doesn't need £100,000 as seed funding. I mentioned our 0% equity loan because it demonstrates what a terrible deal this accelerator is offering.
Re: Let’s mug a startup founder
#60I am surprised they managed to get the loan via the Small Firms Enterprise Loan Guarentee scheme. I don't know any web based business that has succeeded yet, most bank managers authorise the loan as the guarantor provided you have enough equity yet in experience lack little web experience and equity in a property. I am citing from previous experience, when pitching a travel startup to a Natwest 'business' manager his…
We had the same experience with Natwest. Our events business was doing over £1m in revenue with them, for over three years - and they still turned us down. They seemed completely aware of a recurring revenue model. Insanely frustrating. I just hopped on the web and Googled 'small business loan' and came across Lloyds. I filled out a random contact form and amazingly they got in touch. I had to prepare a traditional b…
Congrats!
It does irritate me that the UK government bleat on about making business finance readily available then you end up face to face with the likes of Natwest!.
Reading articles about the startup program in Chile and the building of a tech hub in Portugal I do wonder what happened to the innovation in the UK business sector, if the Startup UK website was anything to go by it's gone.