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Let’s mug a startup founder

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Re: Let’s mug a startup founder

#61

Post by tptacek »

ryancarson wrote: post #59
tptacek wrote: post #57

Ryan, 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.

Loans and lines of credit often don't require equity. They frequently do require you to put up your house. You cannot pull an interest-free loan, backed only by your corporation, off a tree. It is a real offering. It is not reasonable to call it a "mugging".

We agree on how valuable $32k of seed money (debt or equity) is worth. To wit: not much.

We agree on how expensive 6% of your company is worth. To wit: a deceptively large amount.

We agree that this seed program is probably not a good deal.

I just think there's a difference between "probably not worth it" and "bad virtually to the point of criminality", which is what the wording you used meant.

Re: Let’s mug a startup founder

#62

Post by swombat »

halesmark wrote: post #54

Hi – 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 busi…

Thanks for jumping in to explain. I appreciate it's not always easy to take part in a discussion that's mostly focused on ripping you to bits (justifiably or not). I for one look forward to see how this evolves, rather than judging everything on the basis of what it looks like on day one. Actions speak louder than words.

Re: Let’s mug a startup founder

#63

Post by ryancarson »

tptacek wrote: post #61
ryancarson wrote: post #59

Earlier quoted context omitted.

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.

Loans and lines of credit often don't require equity. They frequently do require you to put up your house. You cannot pull an interest-free loan, backed only by your corporation, off a tree. It is a real offering. It is not reasonable to call it a "mugging". We agree on how valuable $32k of seed money (debt or equity) is worth. To wit: not much. We agree on how expensive 6% of your company is worth. To wit: a decepti…

Mark, the guy behind this accelerator, sold his company for multiple millions. Are you suggesting he doesn't have the business experience to see this for the bad deal it is?

Re: Let’s mug a startup founder

#64

Post by halesmark »

swombat wrote: post #62
halesmark wrote: post #54

Hi – 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 busi…

Thanks for jumping in to explain. I appreciate it's not always easy to take part in a discussion that's mostly focused on ripping you to bits (justifiably or not). I for one look forward to see how this evolves, rather than judging everything on the basis of what it looks like on day one. Actions speak louder than words.

Thanks swombat, I welcome constructive feedback, but have been a bit taken aback by the nature of some feedback, the best way to engage Entrepreneurs and investors outside of the tech community is to work with them and provide constructive feedback, I'll keep listening

Re: Let’s mug a startup founder

#65

Post by tptacek »

ryancarson wrote: post #63
tptacek wrote: post #61

Earlier quoted context omitted.

Loans and lines of credit often don't require equity. They frequently do require you to put up your house. You cannot pull an interest-free loan, backed only by your corporation, off a tree. It is a real offering. It is not reasonable to call it a "mugging". We agree on how valuable $32k of seed money (debt or equity) is worth. To wit: not much. We agree on how expensive 6% of your company is worth. To wit: a decepti…

Mark, the guy behind this accelerator, sold his company for multiple millions. Are you suggesting he doesn't have the business experience to see this for the bad deal it is?

It is hard for me to argue this with you, because I agree that 6% is a steep price to pay for any favor, be it an interest-free unsecured loan or a $20k seed investment.

But that's a subjective point.

What's not subjective is that an interest-free unsecured loan for $32k USD IS a favor, not a mugging, and while I don't think it's worth 6%, or even 1%, it's not right for me to accuse the offerer of that loan of mendacity.

A question I'd put back to you:

Assume that there is no seed fund or accelerator program you can get to accept you, other than this one. Assume that you need the $32k; stipulate that you cannot, say, bootstrap or consult your way out of the first 6 months living expenses.

Would you advise someone not to start a company instead of accepting this deal?

Re: Let’s mug a startup founder

#66

Post by swombat »

cookiecaper wrote: post #56
armored wrote: post #42

Earlier quoted context omitted.

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, bu…

Worth adding that given the likelihoods of failure of a startup (high), risking the house on it would be insane.

Re: Let’s mug a startup founder

#67

Post by swombat »

ryancarson wrote: post #23
repoleved wrote: post #17

This is an interesting post from an unlikely source. I think carsonified Wil soon be the Arrington of bullshit startup advice. Just trying to peddle those CSS3 How To Videos...what a joke.

I guess the fact I've started four companies doesn't count :) - One acquired - One failed - One currently humming along profitably - One currently growing at an insane pace (thankfully!)

Don't feed the trolls! :-)

Re: Let’s mug a startup founder

#68

Post by ryancarson »

tptacek wrote: post #65
ryancarson wrote: post #63

Earlier quoted context omitted.

Mark, the guy behind this accelerator, sold his company for multiple millions. Are you suggesting he doesn't have the business experience to see this for the bad deal it is?

It is hard for me to argue this with you, because I agree that 6% is a steep price to pay for any favor, be it an interest-free unsecured loan or a $20k seed investment. But that's a subjective point. What's not subjective is that an interest-free unsecured loan for $32k USD IS a favor, not a mugging, and while I don't think it's worth 6%, or even 1%, it's not right for me to accuse the offerer of that loan of mendac…

Your question highlights the fundamental problem. All the hype about acquisitions of young startups, funded by seed programs, has created some sort of widely held belief that you have to participate in an accelerator to launch a startup.

It's also causing investors to be more aggressive in pushing their money on startups, whether they need it or not. Inexperienced startup founders will mistake their fervor as an indication that they should take the money, instead of an indication that maybe their startup has real potential and they should be slower to give part of it away.

"Would you advise someone not to start a company instead of accepting this deal?"

That's a false dichotomy. There are plenty of companies (ours, 37signals, etc) that started without any funding at all. Then when we decided to raise funding (debt in our case), it was easy to get because we had real revenue and clear growth. It made sense for the bank to loan money to us because it could see we that we were going to pay it back.

Let's all stop spreading this bizarre myth that you have to take part in an accelerator to start a company.

Re: Let’s mug a startup founder

#69

Post by ryancarson »

halesmark wrote: post #54

Hi – 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 busi…

Mark - the trouble with your accelerator is this: It's a deal that not even you would've taken when you first started.

To promote it as "Breathing life into tech startups" is irresponsible.

Re: Let’s mug a startup founder

#70

Post by tptacek »

ryancarson wrote: post #68
tptacek wrote: post #65

Earlier quoted context omitted.

It is hard for me to argue this with you, because I agree that 6% is a steep price to pay for any favor, be it an interest-free unsecured loan or a $20k seed investment. But that's a subjective point. What's not subjective is that an interest-free unsecured loan for $32k USD IS a favor, not a mugging, and while I don't think it's worth 6%, or even 1%, it's not right for me to accuse the offerer of that loan of mendac…

Your question highlights the fundamental problem. All the hype about acquisitions of young startups, funded by seed programs, has created some sort of widely held belief that you have to participate in an accelerator to launch a startup. It's also causing investors to be more aggressive in pushing their money on startups, whether they need it or not. Inexperienced startup founders will mistake their fervor as an indi…

If you ask, you'll find that there are few on HN louder and more obnoxious about skipping external funding than me. We bootstrapped in 2005. Not getting funding: best thing that ever happened to us.

But it's one thing to have it in for all seed funding programs (I'm with you on that!) and another to call one specific one "muggers" because you particularly don't like their terms. At least, not with terms like these.

Finally, just out of curiosity: is your $162k debt financing secured solely with your corporation? You didn't have to provide any collateral, or any personal guarantees? Obviously: I don't think you could pull that off in the US. Unless your revenues are way higher than I assume they are (my current assumption is already pretty high).

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