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How I Got An Unsecured Start-Up Business Loan @ 1.89% Interest Deferred
To my knowledge, I am the only technology CEO who has been able to secure a nice five figure start-up business loan with no product, no revenues, just my handsome face, at what's literally the lowest interest rate allowable by law - interest deferred over 5 years.
I must say, it was by kinda accident. No one gives out five figure unsecured loans with interest deferred to some dude with an idea on the back of a napkin unless they are high. I got lucky. I got lucky by sticking to my guns and not being afraid to study my contracts like my life depended on it.
I was a part of a technology accelerator a couple years back. It was a pretty big deal for me at the time because I was part of the "3%." Only 3% of startups who apply for incubators get in. Whats more - in my cohort, everyone, every last one of the other teams were lead by someone with a fancy degree from a big fancy school and a lot of fancy corporate experience, except me.
Anyway, the standard deal was that they give you $X and they take Y% equity. Cool. You also get "free services" (caveat emptor). In my case I got free legal from a firm who charges $750 / hr! So, the firm sends me all of my contracts and I'm supposed to add a signature and send them back and wait for my stock certs.
But I did something very strange... Every other CEO was all over chalkboards drawing diagrams of the product they were building, or attending workshops, or meeting with mentors, or writing codes... I was reading my paperwork with 82 high lighters on deck.
After poring over my contracts I found all sorts of "interesting things" I wanted out. The way the contracts were set up, I'd be going into a seed round negotiations with as much leverage as a one legged table.
There were all sorts of other things in the contracts that troubled me so I extracted the things I had the power to dictate. For example, it was very important for me that the CEO maintain first right of refusal. They preferred that the board be granted this right. In my view, if I gave that up at the incubation phase, that's one less bargaining chip I'd have in successive rounds. They also wanted my shares to vest over time - I wanted my shares fully vested immediately because again, I'd have another bargaining chip in successive rounds... There were other items, but these are the main two that were cause for concern.
These folks were completely caught of guard as no other participants spent as much time reading their darned contracts as I did. It almost reminded me of that book by Vernon Jordan; "Vernon Can Read!" where as a domestic servant, Vernon's employer caught Vernon in his study - reading. Vernon had been secretly sneaking in there to read and he was caught red handed!
Nonetheless, I pushed back... and hard. After a back and forth that seemed to go on forever we reached an agreement. I would not be participating in their demo day to "showcase" our start-up. Once I understood that their business model had zero to do with earning money from a successful exit, I wanted no parts of spending 3 weeks preparing for demo day when we could focus on making money.
Anyway, I got them to agree that they would give me all of my stock back, and that they would arrange my legal as I wanted it. They converted the stock to an unsecured loan payable over 5 years, interest deferred at the lowest interest rate allowable by NYS law.
I consider myself incredibly lucky to have pulled this off, but when I look at the anatomy of it and how things went down, it started with one thing; innate curiosity. Innate curiosity drove me to independently study contract law during summer breaks in college (thought I was law school bound) and innate curiosity drove me to double check my "lawyers."
I was inspired to write this as I had been working with a few guys in whom I have relationships with in this business. They have all the drive in the world. Work hard as hell. Little curiosity. In fact I think if the average broker dials up his curiosity meter a bit, he'll find himself more profitable.
I must say, it was by kinda accident. No one gives out five figure unsecured loans with interest deferred to some dude with an idea on the back of a napkin unless they are high. I got lucky. I got lucky by sticking to my guns and not being afraid to study my contracts like my life depended on it.
I was a part of a technology accelerator a couple years back. It was a pretty big deal for me at the time because I was part of the "3%." Only 3% of startups who apply for incubators get in. Whats more - in my cohort, everyone, every last one of the other teams were lead by someone with a fancy degree from a big fancy school and a lot of fancy corporate experience, except me.
Anyway, the standard deal was that they give you $X and they take Y% equity. Cool. You also get "free services" (caveat emptor). In my case I got free legal from a firm who charges $750 / hr! So, the firm sends me all of my contracts and I'm supposed to add a signature and send them back and wait for my stock certs.
But I did something very strange... Every other CEO was all over chalkboards drawing diagrams of the product they were building, or attending workshops, or meeting with mentors, or writing codes... I was reading my paperwork with 82 high lighters on deck.
After poring over my contracts I found all sorts of "interesting things" I wanted out. The way the contracts were set up, I'd be going into a seed round negotiations with as much leverage as a one legged table.
There were all sorts of other things in the contracts that troubled me so I extracted the things I had the power to dictate. For example, it was very important for me that the CEO maintain first right of refusal. They preferred that the board be granted this right. In my view, if I gave that up at the incubation phase, that's one less bargaining chip I'd have in successive rounds. They also wanted my shares to vest over time - I wanted my shares fully vested immediately because again, I'd have another bargaining chip in successive rounds... There were other items, but these are the main two that were cause for concern.
These folks were completely caught of guard as no other participants spent as much time reading their darned contracts as I did. It almost reminded me of that book by Vernon Jordan; "Vernon Can Read!" where as a domestic servant, Vernon's employer caught Vernon in his study - reading. Vernon had been secretly sneaking in there to read and he was caught red handed!
Nonetheless, I pushed back... and hard. After a back and forth that seemed to go on forever we reached an agreement. I would not be participating in their demo day to "showcase" our start-up. Once I understood that their business model had zero to do with earning money from a successful exit, I wanted no parts of spending 3 weeks preparing for demo day when we could focus on making money.
Anyway, I got them to agree that they would give me all of my stock back, and that they would arrange my legal as I wanted it. They converted the stock to an unsecured loan payable over 5 years, interest deferred at the lowest interest rate allowable by NYS law.
I consider myself incredibly lucky to have pulled this off, but when I look at the anatomy of it and how things went down, it started with one thing; innate curiosity. Innate curiosity drove me to independently study contract law during summer breaks in college (thought I was law school bound) and innate curiosity drove me to double check my "lawyers."
I was inspired to write this as I had been working with a few guys in whom I have relationships with in this business. They have all the drive in the world. Work hard as hell. Little curiosity. In fact I think if the average broker dials up his curiosity meter a bit, he'll find himself more profitable.
