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I will be funding my first web startup with debt. My reasoning is, it would take 12-18 months to save the capital required (I'm not a coder) and I would rather launch early and update often during that time.

How have others funded this phase and what was your experience?

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Debt only makes sense to if you can afford it if the startup fails. Think of it like vacationing on a credit card or spending cash to Vegas. Only spend what you can afford to repay and only gamble that which you're absolutely willing and able to lose.

  1. Decide up front how much you can throw into this with zero return.

  2. Do some cash flow projections on repaying the debt at various levels of business success. Run these projections by other experienced entrepreneurs until the numbers are conservative and realistic.

  3. Based on 2, revisit number 1 and stick with it. This is your walk away limit and it cannot change or you'll easily find yourself throwing good money after bad.

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thank you. I think setting a dollar limit for this phase is a must. After that limit has been invested I'll need to step back and take a good hard look at the business and it's potential for ROI. – bob ross Mar 10 '10 at 17:50
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Be aware of debt especially as a non-coder. Assuming you don't have project management experience as non-coder it'll be really hard for you to estimate certain stuff, if you go in there with debt you'll get burned quite quickly.

Save some money, hire a guy, get the first prototype up and running then start knocking doors of angels, VCs etc. whatever you are after. Or just launch it as alpha if you have that kind of product.

I was in similar situation and I chose to not go into debt because from my previous startup experience I know it'd bring massive amount of extra stress (especially if you are married and have a certain life style). A startup is really hard as it's you don't really need extra stress.

Just my 0.2$

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Thank you for your input. I agree it will certainly add more stress. I will likely launch in alpha while keeping my day job to provide cash flow for site improvements and to pay off the loan as soon as possible. – bob ross Mar 10 '10 at 17:41
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I think if you want to bring debt into your life for something that isnt there yet, i would suggest asking from a close friend or someone whom you think you would help later on if your start-up becomes successful, therefore at least re-circulating your money within your group of family and friends rather than going to a bank. But that's just my opinion.

And if you need to return that money, you still could pay it back within 12-18 months and at least you could agree on having no interest on it. As long as everything is written down.

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I agree that friends and family is the way to go. I was thinking of using a P2P lender, which I've used before, as it only costs me 1/2% of the loan for them to manage it and the interest goes to those who lended which I believe is certainly fair (depending on the rate of course). – bob ross Mar 11 '10 at 1:27
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Don't use debt, since you'll have to repay it eventually (with interest).

You forgot one key currency: sweat. If you are not a coder, find a co-founder who is, and will work for free^H^H^Hstock.

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So for you the cost of debt+interest out ways the cost of experience+time (waiting 12-18 months to start)? It's a tough one, I know. – bob ross Mar 11 '10 at 1:25
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Avoid Debt at all costs. Just remember one thing, the vast majority of startups fail, and if it does you will still have the debt. And at all costs don't put the debt on your house! If you take out a loan on your house and the biz fails you loose your house.

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