Comment by cr0sh | Hacker News Reader

Comment by cr0sh | Hacker News Reader

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Isn't this the way companies, until fairly recently, have always been started and grown? Basically, come up with an idea/product, reach around to back pocket (or into your purse) and fund it ad-hoc. That, or take out a loan or such.

It seems like this was the way things were always done - until fairly recently. It seems like things changed sometime around the early 1990s. I tend to wonder if this had anything to do with the S&L scandals and such, plus the recession at the time? I think (maybe I'm wrong) that at that time, banks started to push credit more, and making non-mortgage loans more difficult or impossible to get (I recall my dad getting a loan from the bank to buy a car, with the house as collateral - I don't think that's even possible today).

So today, if you want to take this route, you either have to go old-school and fund it with loans from friends and family (more or less), or find some other kind of small-time investors (non-VC), or use savings, or maybe credit cards or mortgage equity. All have upsides and downsides (for the business, owner, and "investors"). But it isn't as easy any longer to go to a local bank to get a loan to start a business (you'll probably just get pushed to get a business line of credit instead).

I'm probably completely wrong about all of this, though - which is why I don't have my own business, on top of a bunch of other reasons!

The birth of VC as an asset class is generally considered to be in the mid-1940s and created by Harvard Professor George Doriot. The early employees of Fairchild Semiconductor built on the model in the 1960 and helped give birth to Silicon Valley. You're are correct that VC moved into the popular psyche in the 1990s in the run-up to the dot-com boom.

There's a great documentary on Netflix about this titled "Something Ventured."

Sadly not available outside U S A

It is certainly still possible to get loans on collateral. If you have equity in a home then most banks will give you a loan using the home as equity and they don't much care how you intend to use the money. This is what a HELOC is (Home Equity Line of Credit).

The bank gives you a loan that is somewhere less than the amount of equity you have in the home for you to spend as you please. If you don't pay it off they take the house. I know several people who have started their own businesses later in life and used this time of lending to finance their own startup capital.

I'm not surprised that the bank would do this for a car loan for your dad, but I am a bit surprised that it was even needed. Typically when purchasing a vehicle on loan the vehicle you are purchasing serves as it's own collateral.

As you're less likely to crash a house, maybe he could get a better rate?

If you have a decent credit rating then a new car loan will typically have a lower interest rate than a home mortgage. Car manufacturer captive lenders subsidize the rates to increase sales. And most consumers will default on their car loan last because they need the car to get to work. If you're desperate you can always sleep in your car but you can't drive your house.

I think a large part of this is the growth of internet companies, SaaS, ect, compared to the more traditional, we have a product and it costs x dollars, and it cost us very little beyond the cost of human capital to build it.

It simply isn't possible to build a new internet company unless you either have users who are already going to generate revenue from the second you deploy the product, or some amount of financial backing (either personal/familial, or VC based funding). You can't easily put close to 1000 dollars per day of server costs on to a credit card.

Additionally, it's hard to attract skilled developers these days without being already established (and can pay high salaries), or by having the backing of some valued institution (big name VC's/angel investors).

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