Very good point on getting the partner involved in the loan- I'd like to do this, but I'm not sure how to. We have a Delaware corp set up, but since the company doesn't have any credit, I don't know how it could take out the loan.
Perhaps the company could take out the loan, and we could both co-sign?
We're probably about 3 months from being at a point I'd feel comfortable charging- If we got a 10K loan, we could probably cover this easy.
The problem comes in that if our estimates are off, we've made the world a lot more painful for ourselves. We've had quite a few customers asking to pre-register, but I don't like the quality of experience that would give.
I mostly was referring to having your partner cosign or put up some assets himself, instead of you taking it all on yourself. Honestly, though, a lot can happen in 3 months. Be careful not to get in over your head and get yourself in a position where you're subject to financial hardship if something goes wrong. Of course, a 10K loan isn't really that much, and split two ways, it could be paid off inside of a year without too much trouble, so it doesn't seem to me like your risk is too high.
That said, you might want to take a little bit more just to give yourselves some leeway. That would allow you to use a portion of the loan to make the initial few (6 or so?) payments. If you think you're going to need to support your partner for 3 months full-time, I'd shoot more for 4, and allowing yourself a full-time month (in case it becomes necessary) might not be bad, either. Finally, I'd suggest using some of it for the operating costs you mentioned, so that you can work your other job a little less and spend more time on the startup.
One last suggestion: sit down for some time with your partner and discuss what the loan will need to pay for, how much is needed, and how it is going to be allocated. Leave part of it unallocated as a contingency fund. Discuss how to split the responsibility for the debt in the event of a failure. In other words, get everything on the table now so that there are no surprises down the line.
Thanks- That's certainly an avenue I'll look into.. It looks like they do the SBA loans that I had mentioned, but also do their own private loans, which might be an option.
We have two people in our team- If I could get a Chase loan to allow our lead coder to go full-time, and keep my job to make the payments, we could be OK until launch.
It's not optimal, but it might let us get the time we need to launch successfully and quickly.
I'm very open to any other ideas, and appreciate the discussion.
Fair point, but we need to do something. I'd love any ideas- We're Mass based, and we've got the code about 80 percent done, depending on how you count. We've got users who are ready to pay when we launch, and we've got a decent potential for growth, but we know we're unlikely to be the next Google with this project.
In some ways, we're working to get the bugs out of our Engines, and working on our bona fides, so we can buy google with the proceeds from out NEXT project ;)
> We've got users who are ready to pay when we launch
How long (both money and time) are you from being able to launch? How many users are ready to pay and how much?
There are answers to those questions that imply that you can get money the money that you need now by offering said users a discount or longer subscription time if they pay now for your service when it's ready.
I know we could (They've offered), but I think it's a pretty terrible user experience.
Essentially, they'd be pre-ordering based on trust in us, with nothing to show for it. I'd be happy to give them an extended subscription, but I feel like it would feel cheap, and make us look bad, not to mention that it would be a pretty frustrating experience for them.
I agree with the idea, I just don't think it can be made to work in a classy way.
Why are you arguing with your customers about what they want?
That's a hard argument to make if you're correct, but you're not - they are. It's an incredible user experience. It lets them in on the excitement. It gives them a story to tell others. That's why they want in.
And no, it's not "cheap" to give them a discount, it's rewarding them for faith and it's fair. (You can think of it as interest if you'd like.) It's also fairly standard practice.
Do it right, and they'll be out there selling more "pre-release" subscriptions for you. Deliver, and they'll be your best salesfolk.
Of course, it is poor form to take their money if you're not going to deliver.
Alright- You seem to be in the consensus on the news.yc board, and I'm coming around to your viewpoint. That being said, what are the alternatives? I'm already working 65 hours a week on my primary job, which I need to pay rent and the server costs, art costs, etc for the startup.. Then I'm putting in another 30-35 a week on the startup (12 on Sat + 12 on Sun + 4ish Tues-Wed-Thurs)..
I can't really take another job- I just don't have time to do that, and actually code anything.
Approaching AAs is hard, since the product isn't as "Sexy" as a lot of things. It's likely to a good few hundred K per year after we get it going, but it's not the next Microsoft.
Do you have any ideas on where else to look? Is there something outside the AA route, or even a sub-niche within in we should look at?
Whoa, you work a lot! I would never manage that. Currently working maybe 30-40 hours a week on our start-up (or maybe spin-off would be a more appropriate term), and I feel I could not really be that productive for much more hours per week.
Of course I am often processing the problems in the background while doing something else...
The hard part of working that much is trying to balance work and Family. Mostly I've given up sleeping- I know it's not ideal, but I'm down to 3-4 hours a night.
In full honestly, the 65 hour figure only comes in when I include travel time. (about 2 hours/day)
My typical day is:
Get up at 5am, and head to work.
Work from 6-4, then head home.
Drive home.
Family stuff from 5-7 until my partner gets out of work.
7-1, Startup stuff.
1-5, sleep.
On the weekends, I try to get a bit more family stuff in, but then I usually end up going to work for another 3-4 hours on Sat/Sun, and put in the rest of the day on the startup.
I wish I had time for a 2nd job, but, really, the startup is the 2nd.. and the 3rd. ;)
I'd love any ideas to raise additional money for the startup- If we could work on it full-time, we'd really be doing something special.
Hrmm.. Very fair points, both on outside investors, and on CAPCOS. With outside investors, I know we'd get a better valuation if we could launch, and start bringing in revanue before we go out knocking on doors. Investing in a dream and a codebase is one thing, but seeing the numbers on paper has to help.
You can if you put your personal assets and reputation at stake instead. To a degree, this is what you're doing in a startup anyway. You're putting your money, time and energy on the line, and hoping for a reasonable return on that.
Granted, you may be right in that it's not worth it for many projects. The project we're working on isn't as sexy as some though, and is unlikely to take over the world. What it does have is a moderate number (300ish) of users ready to sign on as paying customers at launch, and a good chance to tripling that within 6 months. Those aren't retire to Tahiti numbers, but they're enough to pay for dev.
Those sort of numbers make it hard to approach most AAs, who want to see a 10:1 investment:return
That's fair, but at the same time, I'm hesitant to agree, on a few ground-
1) You're certainly right that banks have nothing to go on. My credit isn't amazing, but its certainly decent enough that I could probably manage a small loan from the banks on personal credit alone. It would provide a few months float money, at the least.
2) You've argued heavily before that there needs to be an element of becoming personally committed[1], providing motivation. Having a Personal Loan over your head is certainly one way to do that.
3) Are there other options? Raising Angel money would be more difficult for us that for some projects, because we're not as Sexy as we could be.. We sent in a yCombinator proposal that was very ambitious, but were rejected, so we scaled back to what we thought we could achieve on our own.
We're doing a pretty decent job on it, but its not going to be the next Google, or even the next Scribd. Most Angel Investors seem likely to want to back a sexier horse, so to speak.
We do have a dedicated group of users waiting to sign up for paid subscriptions, and we know we could hit profitability reasonably quickly, but how do we get from here to there?
1) I'm sure you can find a way to get some sort of bank to lend you money regardless of your credit rating. There are plenty of banks in the business lending money in high-risk situations. Getting the money probably isnt the problem.
2) I see your point, but the problem with being in debt is that it is something you don't have control over or can easily fix. Having a collections agency call you all of the time threatening to repo your personal possessions is not exactly a positive motivator either. I would rather run out of money and be piss poor than have an unpaid loan over my head, personally.
3) Raising angel money is extremely hard I'm finding... This is a huge benefit of YC, IMHO. Guy Kawasaki said in one of his books that you are more likely to get struck by lightening than land VC funding. That quote is not as ridiculous as I once thought..
Thats awesome you've got dedicated users, keep it up. Aim for the sky though, dont tell yourself you wont be the next Google b/c if you think that way you surely wont be.
You're doing a software startup, so your costs should be minimal. You should be able to cover these costs by consulting for a few months at the beginning, then living off of this cash. Just move in together in a cheap apartment, buy food in bulk, etc. It only takes a couple months of consulting to save up enough cash for a year.
Plan A) Don't fail. If we are able to bring in a moderate level of revenue, we could probably cover the costs of repayment, even if we had to halt further development.
Plan B) Suck it up, and pay for it for the next 5 years. Obviously, this plan sucks, but it's better to have tried, isn't it?
I'd love any other ideas for financing- We want to make this happen; I'm just looking at it, and seeing a loan as the most achievable option. I'd love to be wrong ;)
Finding angels isn't as hard as you think. Someone you know or someone your founders know has a connection that can be used. Find it and use it. Angels tend to know other angels, so all you need is to find one. Even if that investor doesn't want to invest, there's a good chance they'll be really excited for you (having been there themselves).
If they don't help you out financially, they might connect you with angels they know.
The short version: if you already have traction and are passionate, find an angel.
Perhaps the company could take out the loan, and we could both co-sign?
We're probably about 3 months from being at a point I'd feel comfortable charging- If we got a 10K loan, we could probably cover this easy.
The problem comes in that if our estimates are off, we've made the world a lot more painful for ourselves. We've had quite a few customers asking to pre-register, but I don't like the quality of experience that would give.
I appreciate the advice, thanks.