How Startups Pay Back Every Bit Of Debt
You know you have to pay back investors with a sizable return, but what about family, friends, and even yourself?
When you make the decision to start your own company, you’re taking on much more debt and risk than you realize. And it isn’t all about dollars and cents.
Unless you’re independently wealthy, and even when you are, your costs as a founder are going to be driven primarily by your time, your sweat, and as much help as you can get from everyone around you. This ultimately results in a number of different kinds of real, expensive debt.
As a career entrepreneur, I’ve experienced this debt buildup with every single venture. Relationships and friendships get strained. Favors get called in. Your mental health is constantly in jeopardy. You tap your network dry. And let’s not sleep on the actual money that’s coming out of your pocket.
Here’s what I’ve learned about how to keep all that debt from pulling you under, from over 20 years running or working with dozens of startups.
Some debt is always OK.
The discussion sprung from an answer to an entrepreneur’s question in Teaching Startup about how to avoid and manage technical debt. Our expert gave a great answer, and also noted that some technical debt is perfectly fine. In fact, in most cases, a debt-free approach is impossible, just like it might be on the financial side.
This answer spurred further discussion about all the different kinds of debt an entrepreneur takes on. You might not realize it right away, but eventually you need to pay all this debt back. And if you wait until the end of the startup’s run to do that, it may be too little, too late.
You understand financial debt… right?
Too many entrepreneurs start their journey by shopping their idea to investors right away. What they don’t realize is, even if they succeed in raising capital out of the gate, they’ve now put themselves on a treadmill that will perpetually speed up.
Sure, the return on that $50,000 seed money might be achievable through organic growth, but that’s not the plan. Investors expect…