My Startup is Worth Millions — Why am I Broke?

There's nothing quite like being worth millions on paper and still not being able to afford the shittiest car.

If this sounds familiar, it's because many of us maintain an extraordinary paper worth that's worth absolutely nothing outside of our conference room.

Investors say I'm worth millions. My credit card company disagrees.

It's not uncommon (at all!) for Founders to have all of their net worth tied up in their company without a real dollar to show for it.

That's because the value we have in our stock has zero liquidity — it's a promise of a future payout — without any pay. This dichotomy is maddening to any startup Founder, not to mention almost any business owner since the dawn of time.

Why doesn't a bank think I'm worth something?

When a lender looks at us they’re thinking one thing: "What is my recourse when this person stops paying me?" They’re looking for old school collateral — they want dollars and W-2s.

Their purview of the world is based on a very long history of collecting from people with regular jobs and assets they can easily take back. Our startups don't easily fit in those categories, no matter how much the rest of the world might think they do.

Is there a way to turn this paper money into, you know, real money?

There is, but it's expensive.

Depending on the nature and ownership structure of our business, we can sometimes find some "liquidity" among specialty lenders who will use our business earnings as collateral.

These range from "merchant cash advance" companies (on the most expensive side) to commercial banks who work with startups. To be fair, these are often very difficult to find useful terms with, but they do exist.

Alternatively, there are private equity firms which will look to businesses with as little as $5 million in revenue to buy a percentage of the company (Founder liquidity) while still allowing us to run them. This is often the most likely way for Founders to get some liquidity without being able to totally sell the business.

I hear about Founders 'taking money off the table' — what's that about?

It’s true that in very rare circumstances highly competitive fundraising deals sometimes create the option of Founders creating some liquidity ("taking money off the table") during the fundraising round.

But it's super rare, and if that were an option, it would be pretty obvious. Most investors scoff at the idea of Founders using their capital to fund a Founder's bank account, but if it means getting into a hot deal on competitive terms, they may be open to it. For the rest of us, it's no dice.

As it happens, most of us Founders have to either sell the business (or a portion of it) or look for some sort of way to collateralize the business to lend against.

There aren't a ton of other options. Until then, we put our heads down, pack our leftovers, and grind toward another day until those paper stocks are worth piles of gold.

In Case You Missed It

What to do when you’re low on cash. Sandeep Shroff, CEO of myStartupCFO, offers 8 key pieces of advice for when your startup is low on cash.

How startup loans work. Our team looks at the 5 different types of business loans most relevant to startup Founders so you can decide which is right for you.

How much should you pay yourself? (podcast). As a Founder, should your salary be on par with what you were earning at your last job? Or should you tough it out and not get paid at all? The answer is probably neither.