Balaji Srinivasan posted a great essay on how founders should think about debt vs equity, unfortunately it’s on X/Twitter so the format isn’t great, but the content is gold. As we exit the ZIRP world and go back into normal interest rates, I think this is really important concept for entrepreneurs to understand.
This is super interesting to me. As a female founder, I made the classic mistake of under-raising. I raised £190k when we probably easily needed 2x or more.
Our revenue grew super fast but then so did our costs. We incurred several years of losses and when the equity investment ran out, I tried to get more investment and everyone said no… even the banks.
I managed to secure 3 loans, one was a gov’t loan, 2 were social enterprise loans (45% of our students are low income, BAME, LGBTQ+, 60+ and pay lower rates for a longer period of time). We also introduced a donation scheme to our students who want to contribute and I gave up my salary for 12 months after having to let go of most of our team.
We ended up with around £250k in debt. Thankfully our lenders have been very supported in how we pay them back but about 10% of our monthly revenue goes back to debt repayment.
Last year, we finally broke 7 years of losses with a small, but significant profit. Without the loans, the company would have gone under so I’m grateful I had them but wish it didn’t come down to that. My goal is pay off the debt in the next 3 years and build up a cash reserve of £100k.