We know students are taking their own lives because of the debt they think they can never pay back[1]. Start-up founders are in a similar position, indebted to their investors[2] and under pressure to deliver a return. Do start-up incubators like YCombinator and 500 Startups provide advice and counselling to founders, especially younger entrepreneurs just out of college?
Well, I've never done either, but if you gave me a choice between having a startup fail and coming out of college with $100k in debt and no job prospects, I'd probably choose startup failure. It'd suck, but, assuming you did things the right way, you don't personally owe anybody a dollar.
When you raise money you take on certain ethical obligations. I owe it to my investors to try my damnedest to make the company succeed. I owe it to them to try to give them a good return on their money. I do not owe it to them to reimburse them the money if I fail. At all. There's no debt of gratitude.
If my startup dies and I go down swinging, then I'll know I gave it my best shot. That will suck, but they knew that was the risk going in. I won't lose sleep feeling like I ripped them off, just as I won't feel they ripped me off if I succeed and write them a check for millions of dollars. (I'd actually be quite happy to do so.)
Student loans, on the other hand, leave you saddled with debt that's hard to get rid of even with bankruptcy. There are a lot of people graduating with law degrees right now who are screwed. I imagine startup failure is painful, but not going to ruin your standard of living for the next 10+ years.
I don't know the particulars of this case. Maybe Jody's depression made him unable to live with mistakes he (or someone else on his team) made in good faith. Maybe he did something unethical and couldn't live with being found out. It's tragic either way.
Startup funding is structured as equity, not loans. The situations are not at all comparable. You can virtually always walk away from a failed startup.
Unlike student loans you can always declare bankruptcy if startup related debt is unmanageable so it's only really an issue for older founders who have actual savings.
The article doesn't say what the 28 people on staff did. Even if the cost-per-employee was only $50k/year, that would be an annual bill of $1.5m. A staff of programmers would cost more than 3 times that.
It doesn't really explain away a recent $5m funding round, but there doesn't have to be much of a drop in revenues for monthly payments to 28 staff to start eating away at your bank account very quickly.
It's an online retail company - what do you need 28 people on the staff for? Hosting and administration is outsourced, as is warehousing - that leaves a front office guy, a back office guy, a finance guy, a web guy and someone who writes the truly awful copy that you get to read on Ecomom.
I have no idea where they spent their money - from the article it sounds like some of it may have gone towards misguided inventory purchases, but why would a company like this need its own technology infrastructure? It seems very well-suited for operating on someone else's sales platform (Shopify, or something similar). Let the third-party focus on uptime and scaling while you worry about marketing, promotion, and order-fulfillment of your site and its products.
from the article it sounds like some of it may have gone
towards misguided inventory purchases, but why would a
company like this need its own technology infrastructure?
They're a retail company; by inventory, perhaps it means they spent all their cash on a big shipment of diapers and sippy cups.
Something seems off about this. I think we need to learn more details about what happened at the company rather than just accept some vague idea that there was a bad purchasing decision. Should a bad purchase really be able to sink a company? At an e-commerce company, shouldn't there be systems in place to make sure that this doesn't happen? I hope a another journalist digs into this.
I don't believe anything is priced down due to this news. If I'm not mistaken the free shipping threshold was actually raised to $100 in the last week or two.
I think that inventory liquidation is typically done by a 3rd party in situations like this.
[+] [-] bitcartel|13 years ago|reply
[1] http://www.huffingtonpost.com/c-cryn-johannsen/student-loan-...
EDIT: Added to clarify
[2] A debt of gratitude, where there is a moral obligation to repay investors for their help and funds.
[+] [-] mattmaroon|13 years ago|reply
When you raise money you take on certain ethical obligations. I owe it to my investors to try my damnedest to make the company succeed. I owe it to them to try to give them a good return on their money. I do not owe it to them to reimburse them the money if I fail. At all. There's no debt of gratitude.
If my startup dies and I go down swinging, then I'll know I gave it my best shot. That will suck, but they knew that was the risk going in. I won't lose sleep feeling like I ripped them off, just as I won't feel they ripped me off if I succeed and write them a check for millions of dollars. (I'd actually be quite happy to do so.)
Student loans, on the other hand, leave you saddled with debt that's hard to get rid of even with bankruptcy. There are a lot of people graduating with law degrees right now who are screwed. I imagine startup failure is painful, but not going to ruin your standard of living for the next 10+ years.
I don't know the particulars of this case. Maybe Jody's depression made him unable to live with mistakes he (or someone else on his team) made in good faith. Maybe he did something unethical and couldn't live with being found out. It's tragic either way.
[+] [-] tptacek|13 years ago|reply
[+] [-] Retric|13 years ago|reply
[+] [-] rdouble|13 years ago|reply
[+] [-] leoedin|13 years ago|reply
It doesn't really explain away a recent $5m funding round, but there doesn't have to be much of a drop in revenues for monthly payments to 28 staff to start eating away at your bank account very quickly.
[+] [-] HarryHirsch|13 years ago|reply
[+] [-] uptown|13 years ago|reply
[+] [-] michaelt|13 years ago|reply
[+] [-] drpgq|13 years ago|reply
[+] [-] pclark|13 years ago|reply
[+] [-] lisper|13 years ago|reply
http://pandodaily.com/2012/08/14/a-4-7-million-injection-in-...
They would have had to pay their 28 employees an average of about $300k a year to burn through all that by now.
[+] [-] unknown|13 years ago|reply
[deleted]
[+] [-] rdl|13 years ago|reply
[+] [-] athst|13 years ago|reply
[+] [-] justin_vanw|13 years ago|reply
I see prices that are half or 2/3rds what amazon charges for the same thing. Plus they give free shipping as well for not-that-large orders.
[+] [-] trotsky|13 years ago|reply
I think that inventory liquidation is typically done by a 3rd party in situations like this.
[+] [-] zulfazli|13 years ago|reply
[+] [-] adrianscott|13 years ago|reply