Funding using lines of credit and credit cards? Unbelievably high exposure here. Best of luck to this person, I truly hope they succeed and do not have to deal with the consequences of having a massive debt load with suffocating interest rates!
Well I wrote this long note about staying at your job, saving, and not using credit cards but deleted it all. I figured its your life and why not take a chance!
Goodluck! I will be following your blog along the way.
Well first of all - it's the same problem as using a credit card to pay for anything you can't really afford!
However it has a special "bad omen" significance in regards to running your own business because sometimes you hear stories of someone whose business is not doing well, and they won't admit it and instead ruin themselves trying to bail out the business out of personal funds, such as running up a huge credit card debt.
That's not to say that this guy is going to do that, but just that in general you cringe when you hear of someone using a credit card to fund a business.
If a storm is brewing (aka recession coming into full swing)... I wait it out. I would keep the job, break into the new business idea, build some cash reserves, then jump. But, heck... it's done. Go for it. Warmest regards, Bill.
The one thing I can say about the economy with absolute certainty, at whatever point in the cycle it is... is that there is a recession coming.
There is ALWAYS a recession coming. Go do your thing. Some of the richest and most powerful men in history began with nothing in the depths of the great depression.
Congratulations! I've been out of a job now since the end of Summer 2007. No startup, unfortunately, just a few websites and odd jobs (and free rent via parents), but I'm still in school so I can justify it (however that counts).
Congratulations... I don't think anyone here will call you stupid for quitting. Funding yourself with credit cards though, maybe. I think it's a really bad decision to go with credit cards over much more risk free money.
Well, i have my tax refund check which would last me about 4 months... after that it will be credit cards or investment funding... but i agree credit cards is not the best way to do it..
Do not finance your startup with credit cards. Financing a startup with debt is usually a stupid move, and credit card debt stupidest of all. Credit card debt is a bad idea, period. It is a trap set by evil companies for the desperate and the foolish.
-Dear ol' Mr. Graham himself, from his most recent essay (3rd endnote):
#1 - Optimize for the CHANCE of success, not the magnitude of it. Don't worry THAT much about the % of ownership. Worry about winning.
#2 - Do worry about control and don't give it up. Plenty of investors don't require you to. "If you take money from anyone, like it or not, he is your boss :)" - that's simply not true. You ARE responsible to him, but you don't have to turn over the keys, nor do you have to turn over 50%.
#3 - Get a co-founder. ;-) Spreads costs, and increases likelihood of success and gives you a nice excuse to have a majority of the board seats.
I thought you had friends who were willing to help you out...
Take money from whoever you can - friends, families, and fools. You're not at the investor stage yet where people can eat you alive, and you can just refuse it if they try to. Keep well funded if you can; don't wait until you're out of cash, as investors know you'll be in a bind and will use it against you as much as they possibly can.
Taking money from friends would add motivation (or stress, but you seem like the type who can handle tight situations) and resolve to getting your startup off the ground, so I would recommend you pursue those initial starting funds.
Taking money from someone does make you responsible for that money, but doesn't make him your boss. They're called investors precisely because they give you money and hope to make a return on it - they don't have time to boss you around. Also, if you take money from someone, it means that they believe in your product, which is a great boost to morale especially if you're going in alone.
Finally, there are other ways of raising money besides selling your company - I know convertible debt is one choice, but I'm not familiar with any other low-cost routes (besides YC).
I plan to go the FFF (friends, families and fools) route in a few months. I have money to last me 4 months and after that it will be credit cards, but I hope to have something solid by then and I will be in a better position to get money.
While it's true that if you use debt financing, you're ensuring that you succeed or else, but consider credit card debt: Most credit cards have a high interest rate that compounds each month. By using credit cards (and carrying your debt more than a month or whatever your grace period is), you're increasing your expenses and your burn rate.
It would be better (IMO) to secure a business loan. You'll have a much lower interest rate and a longer time to repay - not to mention the easy regular payment plan.
Still, I prefer equity financing. 10% of a watermelon is more than 100% of a grape.
A business loan? Those that I've seen require hefty personal collateral if not several years of profit backed by tax records. Plus, the minimum amount is usually 25k to 50k. You'll be paying a lot more interest at higher risk than with a credit card.
Money isn't the only thing you take from investors. Especially in the early stages, it's not even the most important thing. Their contacts and experience are more important.
If you succeed the credit card is a better choice If you fail the investors path is the better one.
But you're more likely to succeed if you take smart money.
What would you like him to do? Come to your home town, drive you to the airport and escort you to Silicon Valley personally? Raising money is not mysterious or poorly documented. Don't act like it is.
Braveness takes a certain amount of stupidity :-) Tried to leave a comment on your blog but looks like they are disabled. Anyway, best of luck to you I really admire what you are doing and succeed or fail I think you stepped out and did something, and that's really really awesome.
It is nice you were able to find 100k seed money. Most people don't have that opportunity. I am not sure if it is a good idea using credit cards, but it is not a secured loan.
Someone posted a quote by Shakespeare "Our doubts are traitors, and make us lose the good we might oft win, by fearing to attempt."
Well most of it was just talk... I am not sure how much of it would have materialized and if it was worth the effort to do so now... maybe later when my money dries up.
i have in fact decided to do the same thing. Though i decided to quit about a couple weeks ago, i'm taking some more time to sort things out before i actually quit.
Its nice to see you do that.. puts different voices in the back of my head to rest.
Welcome to the club of those who are willing to do things that most are not. My company has gone from 2 people to 7 and now to 1 over the last 7 years and I will never work for anyone else.
4 months goes by VERY quickly. Believe that you only have 4 months (or maybe even 3) and do everything you can to make your project work in that time. "Work" doesn't mean it'll be perfect. Get it up and adjust on the fly. PG has said it. Others have said it. Launch and iterate. You can do it!
Yes, I would trust my friends more than the credit card companies. The former would like to see you succeed, the latter would just like to see your money.
Some will advise that you should secure funding if you see a downturn coming so that you can weather the storm. I agree though that getting investments at early stages can often be far more trouble than it's worth.
As far as quitting, well of course we think it was a good idea.
