8 ms·

Not naming the company, but I know of a startup that's got a round of $10M (not much but enough) who just applied for relief because their burn rate is $200K+ a

by gjmacd 6y ago

Not naming the company, but I know of a startup that's got a round of $10M (not much but enough) who just applied for relief because their burn rate is $200K+ a month. They have no customers, have been in the red for 2 years and have been slowly building their product out -- like most early funded startups -- they are building potential without revenue (yet). Their theory is, get some free money and treat it like 6 months of salary to help and take it as a "gift". When I cited that they "weren't directly affected by this and could keep going until this COVID thing ended and it wouldn't matter to them." The person I know who's involved at the exec level said, "It's free money, when you get a free bag of money, you don't turn away on that..." I wanted to throw up.

bluetwo 6y ago
And that's why the fund ran out of cash within a week.
londons_explore 6y ago
In an exchange between a government and a company, it's all a matter of policy and law. "We can survive without it so give it to someone more in need" isn't the way it's done, nor should it be in a capitalist society.
- lostcolony 6y ago
  You just made a very compelling argument for more socialism.
  - Nasrudith 6y ago
    Compelling to the right sets of prejudices who have their own telology with preordained conclusions but ultimately a minutae of the whole picture akin to hyperfocusing on the obscure set "deaths caused by wearing a seatbelt" vs the far larger set "deaths prevented by them". It is more an arguement for doing your goddamned homework as a government. Companies are essentially a function to find corner cases within what is written or not written. That sort of "creativity" is what they do. Using it as an arguement against it is like saying we should never have kept and domesticated cats or dogs because they can't be trusted to not to grab the Thanksgiving turkey when your back is turned.
londons_explore 6y ago
This is the government's fault for not attaching more strings to the money. It should have been a loan at favourable interest rates with a fixed term.
- latortuga 6y ago
  The PPP program is a loan at favorable interest rates (1%) and a fixed term (2 years). The loan can be entirely forgiven as well, provided certain requirements are met. There is no collateral requirement but you do have to affirm that you are affected by the pandemic, so it sounds like the startup mentioned by OP possibly committed fraud.
- pkulak 6y ago
  The point was to get money out fast. Everyone knew it would get into some wrong hands, but the window is small here. Any hope of coming out of this in a few months hinges on getting people support quickly. And besides, all these small-business loans are exactly that; loans. You can get them forgiven later if you can show that you used it directly for salary. But later is the key word. Get the money out now, worry about forgiveness paperwork later.
- jdkdi9 6y ago
  “Government by, of, and for the people.” The idea government should have rules around keeping people afloat seems anathema to its mottos. And the people blaming government... it’s like COVID... reality doesn’t give a shit about you not paying attention
- xvedejas 6y ago
  Just a thought: when the government starts giving out lots of money with strings attached, you get a lot more jobs doing administrative compliance tasks. I'm thinking of, for instance, universities and the growing numbers of administrators who exist to chase funding. More strings attached means money will go towards meeting all requirements. Maybe this isn't strictly bad, but it might be less efficient than just letting some undeserving companies get away with extra cash. I'd rather startups consist of employees focused on building their product than focused on qualifying for government grants.
refurb 6y ago
Are you really surprised? I think you'd be very hard pressed to find people willing to turn down free money. It's not like are lying to gov't to get it. They qualify, so why not take it.
- DangerousPie 6y ago
  Don't you have to claim that you are negatively affected by COVID to get it? But I guess arguably everyone can claim that to some degree.
  - akatechis 6y ago
    No. I got my money in my account yesterday, about an hour after my employeer direct-deposited my paycheck.
  - refurb 6y ago
    Looks like there are different programs, but for the payroll loans, I don't see anything like that in the criteria.[1] [1]https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program-ppp https://www.sba.gov/funding-programs/loans/coronavirus-relie...
Aperocky 6y ago
If they qualify, they qualify. If they don't, then they're a fraud. If they shouldn't qualify but they did, then blame the policy makers. Only (2) would have been their fault.
- lukifer 6y ago
  I agree that policy makers bear primary culpability; but that doesn't absolve you morally for your individual choices. This is not "free money", in the sense of "I found a $100 bill on the street"; it comes from the sweat of taxpayers, both present and future. (In self-interested terms, it also doesn't absolve a company from harm to their brand and reputation, if/when it becomes public that they accepted a bailout they didn't need.)
  - dvtrn 6y ago
    So that raises a question, one I ask because I honestly don’t know the answer: have the policy makers who authorized the release of these monies even made a supplemental mechanism for returning it outside of the established parameters for funds distributed as an explicit loan? Taking your argument of the morality of individual choices at face value: how is one supposed to put that money back? Are they obligated to report this action as they would others? What’s the enforcement mechanism like? I get your point but it opens up a lot of questions IMO that maybe adds some sediment to the purely moral water being poured out
  - aero142 6y ago
    I'm curious. If a person qualifies for the stimulus check but has enough in savings to get through the next few months, do you believe they should refuse because it comes from the sweat of taxpayers as well?
    - not2b 6y ago
      There isn't a guarantee that the economic impact will be over after the next few months. But someone who is in really good shape but still eligible for the money could donate all or part of it to charity.
electriclove 6y ago
This is happening times a million everywhere. I find it quite upsetting as well. We are rewarding those who don't need it while neglecting those who do.
bfieidhbrjr 6y ago
Welcome to Europe.
- deleted 6y ago
  [deleted]
nunez 6y ago
The exec isn't wrong. You don't turn down free money if it's available, especially if you can use it to help build the business. There are plenty of businesses in /r/smallbusiness or /r/startups talking about doing exactly this. Now, if they used it to buy a new McLaren or something like that, then, yeah, they're a piece of shit.
- e40 6y ago
  If they are audited and can't show impact by COVID19, then there might be fines. Big ones. I just signed the loan app for my 36 yr old software company which has been hit by a drop-off in sales.
  - lovehashbrowns 6y ago
    Would you mind sharing which company? It'd be nice to have a place where companies which are struggling right now can post ads.
  - cannaceo 6y ago
    I didn't see proving harm by COVID19 as a requirement for applying for the loan. The loan is to minimize unemployment claims. Without the loan I would've been looking to make proactive staff cuts immediately despite not being dramatically impacted by COVID19. With the loan I feel comfortable keeping my workforce employed. My understanding is the requirement to not pay back the loan is that you keep 75% of your staff employed but we will see what the SBA and banks require as part of their loan forgiveness criteria. Another thing to note here is that despite not being harmed directly by COVID19 we are all suffering the indirect harm. Consumers are broke, supply chains are disrupted, air freight cost is sky high, etc.
    - weixiyen 6y ago
      The company applying for the loan is liable for fines if it gets audited and somehow it is shown that the relief was not 'necessary'. Not only that but the signatory is also exposed to the risk of imprisonment. The language in the terms of the loan is far too ambiguous for anyone that's not in a life-and-death situation to take on the risk imo.
atlgator 6y ago
It's a LOAN of $1000 per employee, and you have to retain your employees for 180 days in order for the loan to be forgiven... do the math. I assume most employees make more than $2000 per year. The money is only "free" if you were going to stay open anyway.
- ivalm 6y ago
  but they WERE going to stay open anyways. This is literally free money. They burn 2.4M/year and recently raised 10M. They could stay open even without this free money. This money is a bonus, it doesn't fully pay for the burn but it does give them money despite them not being directly impacted.
ivalm 6y ago
Hedge funds can benefit from PPP as well, after all, in terms of employee count they are a "small business" and they are negatively affected by COVID: https://www.pkfod.com/insights/are-hedge-fund-managers-eligible-for-cares-act-benefits/ https://www.pkfod.com/insights/are-hedge-fund-managers-eligi...
lubujackson 6y ago
Tesla asked for money. Hedge funds asked for money. The U.S. government works for, and is run by, big businesses.
schwartzworld 6y ago
this is why we should bail out citizens, not corporations.
juped 6y ago
If they took the relief money, then they aren't firing - that's the condition. Why is this on top of this thread?

by gjmacd 6y ago

bluetwo 6y ago

And that's why the fund ran out of cash within a week.

londons_explore 6y ago

In an exchange between a government and a company, it's all a matter of policy and law. "We can survive without it so give it to someone more in need" isn't the way it's done, nor should it be in a capitalist society.

lostcolony 6y ago
You just made a very compelling argument for more socialism.
- Nasrudith 6y ago
  Compelling to the right sets of prejudices who have their own telology with preordained conclusions but ultimately a minutae of the whole picture akin to hyperfocusing on the obscure set "deaths caused by wearing a seatbelt" vs the far larger set "deaths prevented by them". It is more an arguement for doing your goddamned homework as a government. Companies are essentially a function to find corner cases within what is written or not written. That sort of "creativity" is what they do. Using it as an arguement against it is like saying we should never have kept and domesticated cats or dogs because they can't be trusted to not to grab the Thanksgiving turkey when your back is turned.

londons_explore 6y ago

This is the government's fault for not attaching more strings to the money. It should have been a loan at favourable interest rates with a fixed term.

latortuga 6y ago
The PPP program is a loan at favorable interest rates (1%) and a fixed term (2 years). The loan can be entirely forgiven as well, provided certain requirements are met. There is no collateral requirement but you do have to affirm that you are affected by the pandemic, so it sounds like the startup mentioned by OP possibly committed fraud.
pkulak 6y ago
The point was to get money out fast. Everyone knew it would get into some wrong hands, but the window is small here. Any hope of coming out of this in a few months hinges on getting people support quickly. And besides, all these small-business loans are exactly that; loans. You can get them forgiven later if you can show that you used it directly for salary. But later is the key word. Get the money out now, worry about forgiveness paperwork later.
jdkdi9 6y ago
“Government by, of, and for the people.” The idea government should have rules around keeping people afloat seems anathema to its mottos. And the people blaming government... it’s like COVID... reality doesn’t give a shit about you not paying attention
xvedejas 6y ago
Just a thought: when the government starts giving out lots of money with strings attached, you get a lot more jobs doing administrative compliance tasks. I'm thinking of, for instance, universities and the growing numbers of administrators who exist to chase funding. More strings attached means money will go towards meeting all requirements. Maybe this isn't strictly bad, but it might be less efficient than just letting some undeserving companies get away with extra cash. I'd rather startups consist of employees focused on building their product than focused on qualifying for government grants.

refurb 6y ago

Are you really surprised? I think you'd be very hard pressed to find people willing to turn down free money. It's not like are lying to gov't to get it. They qualify, so why not take it.

DangerousPie 6y ago
Don't you have to claim that you are negatively affected by COVID to get it? But I guess arguably everyone can claim that to some degree.
- akatechis 6y ago
  No. I got my money in my account yesterday, about an hour after my employeer direct-deposited my paycheck.
- refurb 6y ago
  Looks like there are different programs, but for the payroll loans, I don't see anything like that in the criteria.[1] [1]https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program-ppp https://www.sba.gov/funding-programs/loans/coronavirus-relie...

Aperocky 6y ago

If they qualify, they qualify. If they don't, then they're a fraud. If they shouldn't qualify but they did, then blame the policy makers. Only (2) would have been their fault.

lukifer 6y ago
I agree that policy makers bear primary culpability; but that doesn't absolve you morally for your individual choices. This is not "free money", in the sense of "I found a $100 bill on the street"; it comes from the sweat of taxpayers, both present and future. (In self-interested terms, it also doesn't absolve a company from harm to their brand and reputation, if/when it becomes public that they accepted a bailout they didn't need.)
- dvtrn 6y ago
  So that raises a question, one I ask because I honestly don’t know the answer: have the policy makers who authorized the release of these monies even made a supplemental mechanism for returning it outside of the established parameters for funds distributed as an explicit loan? Taking your argument of the morality of individual choices at face value: how is one supposed to put that money back? Are they obligated to report this action as they would others? What’s the enforcement mechanism like? I get your point but it opens up a lot of questions IMO that maybe adds some sediment to the purely moral water being poured out
- aero142 6y ago
  I'm curious. If a person qualifies for the stimulus check but has enough in savings to get through the next few months, do you believe they should refuse because it comes from the sweat of taxpayers as well?
  - not2b 6y ago
    There isn't a guarantee that the economic impact will be over after the next few months. But someone who is in really good shape but still eligible for the money could donate all or part of it to charity.

electriclove 6y ago

This is happening times a million everywhere. I find it quite upsetting as well. We are rewarding those who don't need it while neglecting those who do.

bfieidhbrjr 6y ago

Welcome to Europe.

deleted 6y ago
[deleted]

nunez 6y ago

The exec isn't wrong. You don't turn down free money if it's available, especially if you can use it to help build the business. There are plenty of businesses in /r/smallbusiness or /r/startups talking about doing exactly this. Now, if they used it to buy a new McLaren or something like that, then, yeah, they're a piece of shit.

e40 6y ago
If they are audited and can't show impact by COVID19, then there might be fines. Big ones. I just signed the loan app for my 36 yr old software company which has been hit by a drop-off in sales.
- lovehashbrowns 6y ago
  Would you mind sharing which company? It'd be nice to have a place where companies which are struggling right now can post ads.
- cannaceo 6y ago
  I didn't see proving harm by COVID19 as a requirement for applying for the loan. The loan is to minimize unemployment claims. Without the loan I would've been looking to make proactive staff cuts immediately despite not being dramatically impacted by COVID19. With the loan I feel comfortable keeping my workforce employed. My understanding is the requirement to not pay back the loan is that you keep 75% of your staff employed but we will see what the SBA and banks require as part of their loan forgiveness criteria. Another thing to note here is that despite not being harmed directly by COVID19 we are all suffering the indirect harm. Consumers are broke, supply chains are disrupted, air freight cost is sky high, etc.
  - weixiyen 6y ago
    The company applying for the loan is liable for fines if it gets audited and somehow it is shown that the relief was not 'necessary'. Not only that but the signatory is also exposed to the risk of imprisonment. The language in the terms of the loan is far too ambiguous for anyone that's not in a life-and-death situation to take on the risk imo.

atlgator 6y ago

It's a LOAN of $1000 per employee, and you have to retain your employees for 180 days in order for the loan to be forgiven... do the math. I assume most employees make more than $2000 per year. The money is only "free" if you were going to stay open anyway.

ivalm 6y ago
but they WERE going to stay open anyways. This is literally free money. They burn 2.4M/year and recently raised 10M. They could stay open even without this free money. This money is a bonus, it doesn't fully pay for the burn but it does give them money despite them not being directly impacted.

ivalm 6y ago

Hedge funds can benefit from PPP as well, after all, in terms of employee count they are a "small business" and they are negatively affected by COVID: https://www.pkfod.com/insights/are-hedge-fund-managers-eligible-for-cares-act-benefits/ https://www.pkfod.com/insights/are-hedge-fund-managers-eligi...

lubujackson 6y ago

Tesla asked for money. Hedge funds asked for money. The U.S. government works for, and is run by, big businesses.

schwartzworld 6y ago

this is why we should bail out citizens, not corporations.

juped 6y ago

If they took the relief money, then they aren't firing - that's the condition. Why is this on top of this thread?