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144. 10 Lessons from my first experience with asking friends for micro-loans

Before I tell more about the micro-loans, there’s some background.

Our company has been facing some pretty big cash flow difficulties the last year. We’ve grown like crazy the last three years, and are doing projects I would never have dreamed half a decade ago. We’ve also gone from five people in a small Danish office to 35 people spread out over eight countries.

But it’s not really a secret that it’s been done helter-skelter and not as part of a well-funded, tightly planned effort. It’s just happened, and we’ve tried to ride the wave without crashing.

So far, we’ve managed, and are now in excellent shape with respect to our bottom line, our team and our future.

In short, things are going very well and look to continue to do so.

There was just one problem, and it was big. That problem was cash flow. Simply put, we spent too much money that we didn’t have to get here, and while things were going well, the cash flow issues were biting at our heels every single week. And anyone who has faced financial uncertainty will know that waking up and thinking “What bills do I need to push one more week?” is not something that reduces stress levels.

We’ve been quite successful at juggling it all for quite a while — something that wouldn’t have been possible without an awesome team of people who have said things like “Sure, I can have my salary delayed for six months.”, “Don’t worry about a raise right now — let’s get out of the crisis first” and “We know it looks dark, but we trust that we’ll get through this.”

Add to that wonderful partners and freelancers, who have helped out by paying up front or by accepting delayed payment, and we’ve managed to keep flying even though it has looked grim from time to time.

We’ve never been really desperate. There have always been backup plans, but we have done our best to stay clear of those. We may be an unlimited liability company, but borrowing money in the apartment Marie and I live in didn’t feel like an optimal thing, and in the same vein, we’ve resisted bringing in a sub-optimal investor just to plug cash flow gaps.

Still, we have borrowed money from friends and family and to see that it’s been smooth sailing would be wrong.

Now, however, everything changed. And I can thank my network of amazing friends for that.

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It started as a thought experiment. Due to excellent ticket sales for our 2018 events in Nov-Dec, our cash flow issues had gotten to a point where we didn’t really need THAT much cash to get over the next hump. And if our (conservative) predictions for 2018 held true, we’d be clear of cash flow problems some time in June, and could then start paying off long-term debt. In short, things were looking better, but there was still a here-and-now-problem.

Normally, we’d solve this by poking key customers and ask them if they could be persuaded to pay (more) up front than agreed on, move around project money or talk with friends/family for short-term bridging loans.

But I decided to try something else — if only to satisfy my own curiosity. I put up a facebook post asking people if they were interested in lending me money for half a year at 20% annual interest (thus giving them roughly 10% return for those six months).

I honestly didn’t know what to expect, but hoped that I’d be able to raise 10–20k EUR by doing so, cobbling together loans from a bunch of friends who maybe didn’t have much, but at least were convinced I could pay it back.

I was also curious if it would lead to massive flame-war style debates on my wall (I never know when things go to hell in a handbasket that way), but thought it was worth the try anyway.

Nothing could have prepared me for the response I got.

Loan offers ranging from 100 EUR to multiple five-figure numbers. People who said “20% is way too much, but if you need money at 6% interest, I’ll gladly help out.”, and people who said “I could be interested, but I’d like to know a bit more.”

It took less than 24 hours before I’d raised 80,000 EUR and closed the cash flow hole with reserves to spare. That included me saying no to many offers (especially most of the smaller-amount ones, to keep it simple), and we now have a database of 64 “Dziobak Angels”, who are open to being contacted when another opportunity/need arises. And that’s without counting those I’m still talking to, who expressed interest in the first place.

Of course, all this money has to be paid back, but I’m not in the least worried about that. Having money in our accounts means that we can save money in a lot of places (airline tickets are cheaper when bought at the right time, for example) and it also means that we’re suddenly much more attractive for regular bank loans. Asking a bank to refinance your high-interest loan when you have money in your account is a LOT easier than asking them to lend you money when you’ve got nothing that they value.

Suddenly we can get back to thinking long-term without constantly feel the knife of short-term economic pain bite into the company’s throat. I can start my days without worrying about how we’re going to juggle our finances, and so can Malik, our finance chief.

It’s like feeling a huge weight lift from my shoulders, and it feels nothing less than euphoric.

But that’s the background. Now to the really interesting part. The learnings. Because of course, I’ve taken away some things from asking for money and I think they’re worth sharing. I’ve been told that micro-loans are on the rise, and maybe some of you can use my experience some way.

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So here are 10 Lessons from my first experience with asking friends for micro-loans:

  1. It feels horrible to ask for money. I have a very different relationship with money than most people, especially when it comes to loans. I’ve borrowed money and I’ve lent it out under dubious circumstances, but I know that asking for money is terrifying. This time was no exception. Doing it openly like this? That only made it more scary.
  2. I was blown away by the response. People I haven’t talked to in years suddenly reached out and said “I’ve watched from the sidelines. I respect what you’re doing, and I trust you. Here’s money.”. That was humbling in the extreme, and also incredibly motivating. And there weren’t just a few, but MANY people. I’m still dazzled by that.
  3. This is a game changer for me. The last year we’ve struggled with cash flow in a major way, but even before that it was something that was often a factor. When we owned the weapons factory (which is another story) back in 2012–2013, we were often in situations where we could have turned 10,000 into 15,000 in less than a year with almost 100% certainty.
  4. There’s a lot of money out there doing nothing. I was thinking I’d mostly get offers for 100–200 EUR or maybe up to 1,000 or so. The first person to hit me with a message saying “I’ve got 10,000 EUR and I’m in.” had me staring at the screen in disbelief. When the next came in, disbelief gave way to a big smile, that just grew wider.
  5. This isn’t about charity. I have people who will lend me money at zero interest for one reason or another. I love those people dearly, but I also know that that sort of gesture is a one-way street. This isn’t that. Here, I’m offering people a chance to make money by letting me use their money for a while. As long as nothing goes wrong, it’s a win-win situation.
  6. Failure is not an option. I just got insane loan offers based on a reputation for delivering on my promises and of people trusting me and my company. I know full well that if I fail at getting people their money back, it’s going to be deeply problematic. So there’s not only plan A, B, C and D for repaying this, but also E, F, G, H and I in place.
  7. 20% interest is apparently crazy. On one level, I know this. On another, I don’t think it’s crazy at all, but that’s of course because I can peek behind the curtain and know full well that 10,000 EUR right now is easily worth more than 11,000 EUR in half a year. If we weren’t growing like wildfire, it would be different. But right now? Hell, yes to 20% interest loans.
  8. The next time will be different. Next time I’ll create a one-page document explaining what’s going on BEFORE I ask in public. Loan documents that have now been prepared will be there from the beginning. We’ve now got a database of Angels to ask (if you want to join it, let me know). Also, it’s not going to be at 20% interest, but more at 6–8%. ;-)
  9. I am filled with gratitude. Having people come forward and say “I trust you.” matters a lot to me. Having them put their money where their mouth is means even more, since money is such a sticky subject with many people. So to all of you who have chosen to put your cash at my disposal, I want to thank you and let you know that I won’t let you down.
  10. I have Ben Green to thank for this. In May, I was at a Legacy real-estate investment seminar in Stockholm. Ben was the speaker at it, and some of his way of thinking blew my mind. I knew nothing of “angel investors” or that money is literally all around us. Ben changed that, and for that I want to thank him (as I have privately already).

And for the curious, here’s the post I made. ;-)

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Yeah, it cuts off at the bottom. Blame my screen size. ;-)

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If you want to get into contact, you can find me at clausraasted.dk.

Written by

Director, The College of Extraordinary Experiences & Coach at McKinsey

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