It doesn't say anything about not having to pay it back if you don't reach profitability. Their answer to "Do I have to pay back the pre-seed funding?" is "Yes".
> When do I have to pay the pre-seed funding back? Don’t worry, we really don’t want you to hand over the keys to your house or car – this is a soft loan. Our interest is in your success and therefore will only look for the loan to be repaid when it makes sense for your business. This will be done on a case-by-case basis.
It makes it sound like the loan is to the business - with limited liability, you don't have to pay it back if the business fails.
They say they're flexible on being paid back, and do it on a case by case basis. Anyone doing it should read the contract/loan terms very carefully to make sure there's no personal guarantee and what Oxygen's rights to call the loan are. But assuming the contract terms match the general vibe they've got on their site, it could be a good opportunity. Again, depending on the specific terms and circumstances.
And the structure isn't necessary to meet the stated goal of an "evergreen" fund, as equity returns on successful venture should fill that need.
It's an odd structure, at best.
Anyways, yes, you should always read the terms on an important contract very carefully, and here's no different. Probably a bad deal if there's a personal guarantee on the loan.
But assuming the contract is square, I could see circumstances that I'd take this deal in a heartbeat - starting a brand new company with 94% equity, $33k cash in the bank, and a $33k loan with very flexible repayment terms seems like it'd have a much higher chance of success than starting with 100% equity, $0 cash, and $0 debt.
BTW. I don't see what's wrong with a personal guarantee. It's nice that you are willing to risk other peoples money, but I think you should be ready to "make one heap of all your winnings, and risk it on one turn of pitch-and-toss". Then you'll be a man.
Your lender is not risking his house to loan your company money and you shouldn't risk your house either, especially if you have a family. It's not so easy to start over once you get married and have a couple of kids, and it's not worth risking getting thrown out on the street if it means your children are going to be sleeping in the gutter.
On the other hand, this is how most small businesses owners I've met did it. Most of us lack the connections to get people to give us money on "eh, if it doesn't work out, we forget about it." terms.
Hell, try to get any kind of lease as a small company without personally co-signing. "If you don't believe in your company, why should I?" is something that more than one landlord has told me.
So yeah, while you could say it is insane, it's also quite difficult to get a company off the ground without accepting some personal liability on the downside.
The other side of that is when you think about what 'deep in debit' means, you should calibrate that to your own personal earning power. This is easier than it sounds; it's hard to get people to loan you more than you can reasonably pay back. Your creditors fear your bankruptcy more than you do.
From what I've seen, starting a failed business does not decrease your earning power. I know I'm a more valuable employee now; aside from the technical skills I've obtained, I now understand a lot more of what the boss actually wants. (unfortunately, most of that knowledge only applies to small companies. Large corps, it seems, operate under different rules, rules I still do not understand.)
[1] I ended up deciding not to shut down the company, so I continued the arrangement until the company was making enough money to pay me a living wage.
It just means, they rather discuss the terms of loans individually, on case to case basis.