Entrevestor’s column on startup founders’ debt last week sparked an interesting discussion on social media, especially in New Brunswick. And today, we’d like to share some of the insights brought out in the online exchange.
The participants dove deeper than we had into the issue, to discuss how student debt can impact the economics of starting a business, and whether a universal minimum income or other steps could help to ease the problem.
Just to recap, we ran a column last Thursday by our Entrevestor reporterJennifer Lee on a huge problem for startup entrepreneurs that doesn’t get enough attention — personal debt.
Read Jennifer Lee's Article on Personal Debt
The column brought out that pay for startup founders is never stable and often erratic, so the people struggling to build an innovative product and get it to market can unwittingly build up frightening amounts of debt.
When we distributed the column on social media, it was retweeted by such groups as Volta Labs and Innovacorp. But the group that really grappled with the issue was the New Brunswick Startup Community on Facebook. By Monday morning, the story had generated 48 comments on the page.
Andre Pelletier of Fredericton immediately brought up one of the key points in the discussion: many young people who are starting businesses are already toiling to pay off student debt.
So, does that mean young people should wait to begin a company until all their student debt is paid off?
There were several points of view on that question.
“Timing and capitalizing on momentum (and luck) play a big part in whether a startup will be a successful or not,” said Yves Boudreau of Moncton. “It also requires a lot of energy that is a little easier to get when you’re younger. Waiting years until student loans are paid off could arguably put you more at risks later in life and make it much more difficult to bounce back.”
Countered Derek Edward Chaisson of Saint John: “I personally worked for 10 years in the corporate world to eliminate debt and build savings before taking my startup on full time.”
Several participants gave technical advice on how to reduce the impact of debt, mainly by making sure you’re working with a really strong accountant or chief financial officer. Some also advised incorporating and placing the debt in the company’s name, assuming a financial institution would allow it.
The discussion eventually led to calls to action. For example, some suggested that a basic income would encourage entrepreneurship as people could develop their businesses before revenues covered their salaries. Others advocated a system that allowed money accrued in employment insurance to be used to offset the costs of starting a business. These issues, suggested some, should be raised in the coming election in New Brunswick.
Finally, Fredericton-based Phillip Curley proposed that accelerators pay founders a minimum wage so they can afford to work on their startups. He said it is “really hard to build a ‘high growth’ business when you're worried about paying personal rent … [it is] easy to get grants for staff — very little for founders.”