Rule #20a – The First Rule of Raising Money

If you followed Rule #1 and actually started your project, chances are you’ve made some headway on down the road. Hopefully you’re on your way to a prototype or maybe you’ve even bootstrapped your way to a finish product. As such, you are likely thinking beyond self-funding your startup and would like to have something in bank account to help further your progress. Thankfully, funds are much more readily available then you can possibly imagine.

The first Rule of raising money is to realize that EVERY dollar you take in as an investment should be thought of as a “loan.” The interest rates and payment terms will vary, but every dollar comes in the form of a loan. For example, a personal loan at a bank may come with a monthly payment and a 10% interest rate. Default on the loan if you aren’t able to pay, and it goes as a huge black streak across your credit report. An investment from your cousin Phil may come with no real interest rate and no time-constricted repayment terms. But if you aren’t able to make a return on the investment (“default on the loan”) then things will be extremely awkward around Phil at every family reunion from now until the end of time.

Without exception, every dollar you raise for your business should make you feel in your stomach like you have taken out a loan because that is exactly what you have done. You are on the hook in some way – financially, emotionally, socially – for every dollar you raise. Remember that. Always.  It may be called an “investment”, a “gift”, a “nominal sum, or “an advance on what you’re getting out in the will.”  But in some way, shape, or form you need to call a spade a spade: the money is a loan.

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