This is not an ideal fundraising instrument for a startup, because it is likely the fair rate of interest will be higher than the loan amount itself (ie >100%).

This is not an ideal fundraising instrument for a startup, because it is likely the fair rate of interest will be higher than the loan amount itself (ie >100%). For a pre-alpha startup, think equity. Any investor will want their chance at a return which reflects the opportunity costs and risks of their investment. Edit: stock makes plenty of sense for investment. The purchase of equity is the same as buying a stake of future cash flows, whether this is as growth or dividends. Note that responsible directorship applies.