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Comment by lionhearted | Hacker News Reader

Did you stop reading right there? Here's the next line -

> 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.

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"Don't worry", coming from people who I'm going to owe money to, generally makes me worry.

It certainly _sounds_ that way, but the fine print is what matters. Is the loan a liability of the founder? or the company? Are these super-early ventures actually incorporated? Do they have the savvy to ask these questions? For the sums involved they certainly can't afford much legal advice.

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.

I've seen loan-for-equity twice in real life, and both times it built profitable businesses. Though they were both older types of businesses with established business models that needed capital to get started, not technology.

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.

Thanks for being the voice of reason lionhearted. It's a little to early to condemn this incubator. The rush to judgement does highlight the need to be totally transparent these days. If you fail to spell out your terms clearly you're going to get raked over the coals by some blogger.

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.

The problem with a personal guarantee is that the lender will always take everything they possibly can, and a personal guarantee leaves no boundaries. It makes it impossible to start up without risking fundamentals of life like housing and transportation, and almost definitely leads to bankruptcy in case things go south. This is OK for some people in the 18-25 age range when they can just go move back in with Mom, but it doesn't work for people with families, people without a safety net, etc.

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.

Worth adding that given the likelihoods of failure of a startup (high), risking the house on it would be insane.

yeah, they say that if you work for someone who puts their own money in to the business you have an insane boss.

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 'safety net' that saved me from bankruptcy (and bankruptcy will save your children from sleeping in the gutter) was personal earning power; in '06-early '07, when my company was deeply in the hole, I found a body shop willing to do corp-to-corp and turned myself out. I worked for other people until the debit was paid off[1].

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.

How did you conclude "loan is to the business - with limited liability, you don't have to pay it back if the business fails." from "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."? I won't.

It just means, they rather discuss the terms of loans individually, on case to case basis.

Phrases like "Don't worry" and "Trust us" would cause me to walk away immediately.

"Hey guys we're really just a bunch of cool, laid-back guys who are only interested in the success of your business. SRSLY"

I'd be very interested to see what their rights to call the loan are. If they demanded to be paid out of the next round it could be disasterous.

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