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I've recently taken an internship in a start-up as a software developer, and, although I'm being paid 500€/mo with a 6-months contract, my CEO (let's call him Bob) has offered me a small stake (2,500€/2.5%) in the start-up, his reasoning being that my presence as a shareholder will benefit the company long-term. Since I can't pay for the shares myself, he's offered to pay for me, and I would repay him when I can.

A few considerations:

  1. We don't have any written contract about this loan, everything is verbal
  2. As you can deduce from the numbers, the start-up has raised 100,000€ of seed capital
  3. The stake might sound small, but the company is structured in a way to enforce a 5% maximum stake per shareholder, so it's not actually that small
  4. All of the shareholders so far are friends and acquaintances of Bob (they seem like they know what they're doing, but given the small required initial investment and the fact they are not from "outside" I have my reservations)
  5. The company can function even without my help, as it's non-tech, but the software I'm working on would definitely give it an edge
  6. It would be very hard for me to turn down this offer now, as I already said yes and he already wired the money, but I haven't signed anything yet
  7. In all honesty, I'm very excited about the opportunity to be a shareholder ina small-medium sized company, but I want to make sure I'm not being too naive

If you want more backstory about Bob and my experience working as an intern for the start-up, you can read this.

Do you think is wise to accept this offer?

EDIT: I forgot to include a (probably) important detail: the startup hasn't been formed yet, but the constitution is set to be next week.

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    Comments are not for extended discussion; this conversation has been moved to chat.
    – Kilisi
    Commented Jun 8, 2022 at 10:14

10 Answers 10

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No. It's not smart.

Bob has effectively loaned you 2,500€ to buy shares, with the shares being their own collateral.

What if the company collapses? Well, you owe Bob 2,500€, because the collateral that you have is now worthless, but your obligation to pay back Bob remains.

It's sometimes the case that employees are offered shares, or options, which get placed in trust until some maturity date. If the employee leaves, or the company collapses, then there is no obligation on the employee to pay back anything.

Looking at the figures you've provided, you've agreed to pay Bob almost half a years worth of salary for the shares. That is an incredibly large amount of money to burn, buying shares in a company that you seem to have concerns with how it's run.

In addition to tall that, 500€/mo is an incredibly low wage. You say you are an intern. A lot of EU countries have regulations that stipulate additional requirements on internships including ongoing training and a 3rd party university being involved. From what you said, it doesn't sound like these requirements are met.

Also carefully read jcaron's answer.

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TL;DR, Give Bob his money back.

Warning: this post does not hold back any punches.

This start-up sounds heinously predatory.

You are working full-time for just 500€/mo or 3.12€/hour?!?!

They're essentially trying to raise another $2,500 in seed capital from you by offering a stake in the company via loan and it's just a round-a-bout way of not paying you. If they're too broke to pay 3.12€/hour then that's a big red flag.

You've already agreed to the miniscule wage so you could certainly finish your internship since the programming experience should be worthwhile.

the start-up has raised 100,000€ of seed capital

This is effectively nothing. The start-up has conned 100,000€ from various people; 102,500€ if you accept the deal.

the software I'm working on would definitely give it an edge

I doubt it; a coffee costs more than your hourly rate. They've bolstered your confidence so that you're willing to make silly deals with them.


Lastly, from your linked post:

I have to build a complex multi-site web parser and a sibling web application (front-end and back-end) that exposes the parsed data to an an internal sales department.

Yeah, this is nothing new and is possibly against the ToS of the web sites they wish to scrape data from. If their business model relies on harvesting other site's/people's data then they really don't have a worthwhile business.

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    I like this answer. It's worth noting the OP has said as they are an intern, and thus are able to be paid lawfully only 500€/mo. I would also say that a lot of EU countries have legislation that places additional requirements on internships, for example training, and a university being involved in some capacity. Commented Jun 7, 2022 at 16:13
  • I don't agree. I'm naturally considering the idea that it could all be a fugazi, but it just doesn't hold up to what I'm seeing. I can't share too personal details, but it looks to me like everything has been done in good faith. The point is that it's all been done a bit too loosely. I am going to talk to my CEO about this, set some ground rules.
    – 965311532
    Commented Jun 7, 2022 at 16:31
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    @GregoryCurrie I am not questioning the legality of the wage. I'm trying to point out the exploitativeness of the start-up.
    – MonkeyZeus
    Commented Jun 7, 2022 at 16:35
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    @FluidCode Wouldn't a good-faith offer include free shares of the company? The 6-month contract is worth 3,000€; after taxes is that not suspiciously close to the 2,500€ being asked of OP?
    – MonkeyZeus
    Commented Jun 7, 2022 at 16:42
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    @965311532 For your sake, I hope I am wrong. Unless Bob participates on this site and decided to reveal the true plan in a comment below your question then we will basically never know. After 6 months it would be great if you let us know how things turned out.
    – MonkeyZeus
    Commented Jun 7, 2022 at 16:45
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Don't do it, unless you are willing to see five months' worth of salary disappear.

A startup is an investment with high risk and high reward - it's basically a gamble. One should not allocate money to a high-risk investment without accepting the very real possibility that they will lose it all. For high-risk investments, do not invest more than you can afford to lose. Here, you're not even investing money you can't afford to lose, you're investing money you don't even have. It's like going into debt so you can play blackjack at a casino, which is widely regarded as a Bad Idea.

Investing in the startup you work at is doubly risky, since you're putting all your eggs in one basket. If the company fails, you lose your investment and your source of income. The lack of diversification is even more troubling than investing in any other startup.

Note that any investment comes with an opportunity cost - investing 2,500€ in one company necessarily means you cannot invest it elsewhere. Your investment strategy implies that you believe this company is the best investment among countless options, seemingly for no other reason than the simple fact that you work there. You haven't even indicated that you think the company is a good investment, merely that you're excited to be a shareholder - but why in this company? You should take your personal connection to the situation out of the equation and look at it in a cold, rational sense. If you did not work at this company, would you actively go to a bank and seek a loan for 2,500€ in order to invest in this company? Your current proposal is functionally equivalent.

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  • You're right in saying that I should look at this as if I was going to a bank to determine if I really want to buy into this. I admit my personal relationship is playing a big role here, as I am inclined to think that this loan will be "easier to deal with" than the one I would get from the bank. Am I fooling myself?
    – 965311532
    Commented Jun 7, 2022 at 15:39
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    @965311532 A person-to-person loan could possibly have a lower interest rate and more flexible repayment schedule, but it's impossible to say without knowing the details. You might stand to save a couple hundred euro in the end with the person-to-person loan, but personal loans can affect personal relationships in ways that bank loans cannot - owing money to your boss opens the possibility for some awkward situations. With the bank loan you have some upfront paperwork and a clear idea of the repayment schedule, which may or may not be "easier to deal with" than a handshake agreement. Commented Jun 7, 2022 at 15:56
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    @965311532, Yes, you are fooling yourself. Taking a personal loan from a boss is like taking a personal loan from a father-in-law or a mafia boss. It comes with too many strings attached. And 30 days from now, he'll force you to sign a promissory note with some additional terms tacked on to it (and he'll do this in front of others so that you feel pressured into signing it). That note will have wording about him being able to recover the loan from your wages, and about having you to repay the loan in full should you decide to no longer work for the company. Commented Jun 7, 2022 at 19:43
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    Please notice the pattern. This guy is pushy. This guy is an exploiter. It's a slippery slope. Do not accept a loan you haven't even read the terms to. When you quit a job, or when your employer goes bankrupt, the last thing you're able to do is pay off a personal loan. And ideally, you want to be able to list the company on your CV, but you'll be reticent to list him as a reference since he'll be hounding for his money + interests. Absolutely, do not take this loan! If he wants to gift you that ownership stake, that's fine. After all, he's underpaying you and he's not training you.He owes you Commented Jun 7, 2022 at 20:03
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    @StephanBranczyk Indeed - there are relatively few, rather mundane ways for a bank loan to go awry, all of which would involve a straightforward monetary payment to fix. A personal loan could have many factors dependent on the person that might be far more complicated, especially when it's from your boss. To paraphrase Tolstoy, all bad bank loans are alike, but every bad personal loan is bad is its own way. Commented Jun 7, 2022 at 20:05
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Not really an answer, but that was a bit long for a comment:

  • As you can deduce from the numbers, the start-up has raised 100,000€ of seed capital.

    Er, no. We can conclude that someone is valuing the company at this amount, and that this valuation is the basis for the price of those shares. That someone is your boss, and you, if you accept that. Nothing else. They could have raised 0. They could have raised 1000€ for 1% of the capital. They could have raised millions but decided to sell you shares at a discount. And anything in between. More likely the former rather than the latter, though.

  • The company is structured in a way to enforce a 5% maximum stake per shareholder

    That would be fun. Probably false.

  • They seem like they know what they're doing.

    Also known as "family, friends, and fools". Also cf. Dot com bubble, Bernie Madoff, TerraUSD, etc, etc. Of course, you don't know which side of the scam they are on.

  • He already wired the money

    Wired to whom? What amount? What paperwork is there? A bank transfer to the company does not mean in any way that the company is issuing/giving shares in exchange (and much less to you).

It could all be very legitimate and a great investment. But it could be a con (worst case), or it could just be a risky operation. Just don't make any assumptions based only on what they say.

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    Let me clarify: the investors have raised about 100,000€ in starting capital (that is currently held in escrow by a notary). What I mean when I say that the company enforces a 5% max stake is that the initial investment was capped at 5,000€ each. I have no idea if it can be kept that way in the future, but I doubt so. The "proof of wiring" is the receipt of the transfer from my CEO bank account to the notary's. I have no basis to think that it could be a scam (I'm not really taking any money out of my pocket anyway).
    – 965311532
    Commented Jun 7, 2022 at 16:26
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    @965311532 If it's a loan you are taking money out of your pocket. It's just delayed a bit.
    – jcaron
    Commented Jun 7, 2022 at 16:29
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    The company is not constituted yet. I guess this was an important detail that I forgot to mention.
    – 965311532
    Commented Jun 7, 2022 at 16:32
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    @Tim it’s customary (or required) in some jurisdictions that when you create a company, all funds are put in escrow either on a blocked bank account or with a notary or equivalent and released once the company has been registered. That part is not necessarily a red flag.
    – jcaron
    Commented Jun 7, 2022 at 20:06
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    @965311532 so you have been an intern for over a month with a company which hasn’t even been registered yet? I suppose you haven’t seen a cent yet, have you? Don’t worry, you won’t see any money, any money he supposedly owes you will be “deducted” from what you now owe him. Even if you’re not very productive you don’t cost him anything. And he can add you to the list of the “dozens of employees” working for him.
    – jcaron
    Commented Jun 7, 2022 at 22:55
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Scam scam scam

Bob has positioned you as a mark. You're inexperienced in the workforce and life, and he's taking advantage of you. Let's take your discussion points:

We don't have any written contract about this loan, everything is verbal.

Of course you don't have a written contract, because if things went south, tangible documentation is evidence for authorities to determine that Bob is running a shady operation. The fewer things Bob signs his name to, the better it is for him.

As you can deduce from the numbers, the start-up has raised 100,000€ of seed capital.

Don't "deduce" when it comes to investments. Have you seen any certified financial statements? Oh, but that's impossible because there's actually no business entity for the company as you've also told us.

The stake might sound small, but the company is structured in a way to enforce a 5% maximum stake per shareholder, so it's not actually that small.

This just sounds not-too-bright from a finance standpoint, but such a rule would have to be written in the bylaws. There are no bylaws for a still-unformed company. Are you seeing a pattern here yet?

All of the shareholders so far are friends and acquaintances of Bob (they seem like they know what they're doing, but given the small required initial investment and the fact they are not from "outside" I have my reservations).

You should honor those reservations. Investment is inherently risky. Bob will target people like yourself who don't know anything about investing. Suggest you do a background check on Bob.

The company can function even without my help, as it's non-tech, but the software I'm working on would definitely give it an edge.

If work product from an intern produces a tangible edge for a company's business, and you're the only technical employee, something's fishy.

It would be very hard for me to turn down this offer now, as I already said yes and he already wired the money, but I haven't signed anything yet.

This sounds like a confidence scam. Is the money in your account? Send it back. There's a catch. Doubt you'll be presented with anything to sign. If you do, it won't have Bob's name on it. Don't sign anything without having documents reviewed by your own attorney. If you mention attorney review, Bob will suggest you use his attorney, which is a conflict of interest; or goad you with the notion that you should just trust him.

In all honesty, I'm very excited about the opportunity to be a shareholder in a small-medium sized company, but I want to make sure I'm not being too naive.

This is called "fear of missing out" and is a well documented phenomenon.

I forgot to include a (probably) important detail: the startup hasn't been formed yet, but the constitution is set to be next week.

Huge red flag, for the points I've mentioned above.

Find a job where you're not being abused. An internship implies training, and not turning you into the IT department.

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  • The tone of this post is a bit condescending. The OP is not the first or last young person to fall for this.
    – Neil Meyer
    Commented Jun 7, 2022 at 18:03
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    Internships is just a euphemism for want work done but unwilling to pay a real salary. The days when noobs where trained by greybeards are long gone. Now most companies just want the best talent for as little money as possible.
    – Neil Meyer
    Commented Jun 7, 2022 at 18:06
  • @NeilMeyer, This is true, but at the same time. If there is really no one technical above him to direct the project, and only an non-technical amateur with grandiose ideas, it's even less of an internship. I'm not saying this is unusual, but at least, it's a sign that he should have very low expectations for this particular internship. Commented Jun 7, 2022 at 21:38
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In your gut, you know deep down that this business relationship is not going to work. Your other question makes that very clear. Some people can be extremely charismatic and extremely pushy.

Please read this book: The Partner Charter by David Gage (video summary)

This book was written by an arbitrator. In the US, an arbitrator is like a judge. Basically, this guy has seen so many startups and partnerships fail, he wrote this book hoping to dissuade many partners from even getting into partnerships with each other in the first place.

Also, I'd suggest you read When I Say No, I Feel Guilt by Manuel J. Smith

This is the best self-help book I have ever read. I know the title of that book sounds weird, but I implore you to at least read its customer reviews on Amazon before you make up your mind about it.

Here is a snippet of my own review for it.

This book explains assertiveness and manipulation in opposition of each other. It explains manipulation as the act of indirectly asking for what you want by making others feel guilty. And it explains assertiveness as the act of firmly asking for what you want without feeling guilty and without making others feel guilty.

It gives examples of transcripts throughout the book. And the main technique is so simple ("fogging" and refusing the implied guilt) -- it's been very easy to apply in real life.

Also, I'd suggest you to get in touch with some of his former employees/former business partners (that he's no longer in touch with). What this guy is doing to you now, I can assure you that he has done to others in the past.

So if you want to find out what's going to happen to you a couple of years from now, talk to these people. Tell them your situation and ask for an informal coffee chat. Most people are reticent to badmouth a former employer/business partner over email, or over the phone, but in person, they're much more likely to talk to you.

And regarding the loan, if you don't know what to say to him, email him your own adaption of this message (it's important this is done over email for documentation purposes):

On second thought, I've changed my mind. If this ownership stake is a gift, I'll gladly accept it, but if it's a loan, I really can't.

After all, you praise me all the time, and you have very high expectations of me, but you're hardly paying me anything. And you say I'm an intern, but you don't have anyone technical training me.

So in light of this, I'd suggest that you pay me some better wages, gift me this small token ownership stake, and officially change my title to Junior Developer.

Now, it's difficult to say what he'll say to this, but even if he gets upset and you end up leaving the company, it will be a better outcome for you.

In addition, you may want to negotiate a reduction in the scope of the project. To me at least, reducing the scope is a no brainer. And if you're going to have a confrontation over this "loan" business, you might as well bring up everything else that's troubling you as well.

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You NEVER! accept equity instead of money. It is a timeless con in the start-up world. The vast majority of equity being handed out in the various start-up scenes in the world would only be worth something if the owner's house ran out of toilet paper.

Don't do it!

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    The OPs position is worse than that. Instead of being given the equity along with his meagre salary, he's been given a loan to buy shares that (in all likelihood) will be worth nothing in 12 months time - but he'll still owe on the loan. A bad deal for the OP, excellent for the person who sold him the equity...
    – PeteCon
    Commented Jun 7, 2022 at 16:15
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    You may at that point rather buy land on mars.
    – Neil Meyer
    Commented Jun 7, 2022 at 18:36
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I'm going to address this in two parts, in the first I'm going to give what I think is the sensible thing to do; in the second I'm going to tell you why I don't think you should do the sensible thing.

The sensible thing is to not get involved

You say Bob is as successful entrepreneur, yet what you've presented suggests this either isn't true or he has no faith in the project. €100k is not a lot of money, why is Bob raising that through lots of small pots of capital if he is actually successful? That doesn't make a lot of sense. If it was being spread among involved parties - programmers, designers, sales, whatever is relevant - in order to build commitment to the project that would be one thing but you say it is raised from friends. Raising small pots from friends is something you do when you don't have money or credit; successful entrepreneurs have both. Therefore Bob has most likely, at best, misrepresented himself to you.

What you know most about this company is that they have hired someone as their technical lead (you) that you know neither has the experience nor skill to achieve the task. They be non-tech but this is, at best, negligence on their part. Start ups live or die on the skills of their staff; choosing underskilled staff and giving them tasks beyond their means is a big red flag.

Giving equity is something startups do because they can't afford to pay the going rate; but you're already on pocket money. Trying to get you to put in money instead of getting paid (actually, it's worse than that since it's a personal loan) is not a good sign. Especially in a business supposedly backed by an already successful entrepreneur.

And most startups, even ones which don't already have numerous red flags, fail completely making any equity worthless. The likely outcome here is that you walk away with €2500 less than you otherwise would and that Bob is taking advantage of your naivety because he knows he won't get a skilled developer to come in on the terms he is offering you.

Edit: After the comment from Charles E. Grant I've decided to withdraw the rest of is answer. €2500 is not a huge amount but the possibility of greater liability is too big a risk.

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  • Let me provide some more background about your first few concerns. The reason the company is been raised through this small pots is that per design of the business activity (of which I can't go into detail) it's useful that all shareholders have the same "interest" in contributing to the activity. From what I know, Bob could've raised the company by himself, but that would've been counterproductive. Also, 100,000€ may not be a lot of money in the US, where the venture capital markets are a bit insane, but where I live is a pretty solid starting amount of capital for a company.
    – 965311532
    Commented Jun 7, 2022 at 18:12
  • Regarding your second point, I agree. I will make sure that before I move any further with this deal, I get the agreements crystal clear.
    – 965311532
    Commented Jun 7, 2022 at 18:15
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    @965311532 are all the shareholders active participants in the business? Honestly that sounds extremely weird with 20+ of them. If he gets 20+ people to pay to work for him (like hey doing with you) he’s the spiritual son of Ponzi and Madoff!
    – jcaron
    Commented Jun 7, 2022 at 22:45
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    Like jcaron, I am struggling to think of a reason why splitting ownership of the company like that will affect its success. What happens in 5 years when the original investors want to sell up? Do you have to tell the venture capital company they can only have one of these tiny pots? It all sounds very fishy Commented Jun 8, 2022 at 6:08
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    @965311532 the trouble is that the agreements may seem crystal clear to you, but how much do you know about business and tax law in your country? There can be profound legal and tax implications from the details of how this deal is structured. For example, in many countries this could be done as a "partnership", in which case you could be personally liable for ALL the debts of the company. You need to consult a lawyer. You could be exposing yourself to a huge legal risk for a tiny amount of money. Commented Jun 8, 2022 at 20:03
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I would like to provide a different perspective than the predominat one here: You say

  1. The company can function even without my help, as it's non-tech, but the software I'm working on would definitely give it an edge

Combine that with the fact that you said (in your other post) that Bob is known as a successful entrepreneur it seems to me Bob knows what he's doing. If the software you write is not pertinent to the success of the company then I can see why Bob is fine with letting an intern do it.

Obviously there is risk involved (see Buffy's answer) but depending on your overall social and financial situation and how supportive and financially stable your parents/family are, I might in your shoes consider possibly giving it a shot, potentially.

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    "Bob is known as a successful entrepreneur" - this doesn't smell right to me. 100,000 EUR investment for an already successful entrepreneur is pocket change. He could simply fund the new company at the seed level that he is seeking, and be giving out share options as rewards for loyalty. Instead he has found other investors, and appears to be converting OP's salary into net zero expense to the company Commented Jun 7, 2022 at 20:49
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This really comes down to how much risk you are willing to accept. A startup is a risky venture to begin with, so you are already comfortable with some amount of risk. Are you willing to add 2,500€ more risk?

I've worked for a number of startups and made some good money as a result. This could pay off handsomely. I didn't read your backstory, but if you are reasonably young, and you believe the company will turn into something, then you should go for it. The reason I say young, because losing a 2,500€ investment at 25 is not as harsh as doing it at 55. At 25, you have plenty of time to earn that money back.

You should also learn about the different types of shares that are available, and which ones you are buying. I'm going to greatly simplify this, but there can be A shares and B shares. They are both shares in the company, but there are differences. For example, in the event the company goes under, the assets are sold, and A shares will be paid off before B shares. B shares would get nothing. A shares might get voting privileges and B shares do not. You have to know what you are buying, so make sure you ask. Long story short, try to get the same type of shares the CEO has.

Also, be aware that you might own 2.5% of the company now, but if the company gets another 100,000€ investment, your ownership drops to 1.25%. Other things can also happen that will dilute your shares. This is a great opportunity to learn how venture capital works, so take advantage of it. Don't just throw in your money and hope for the best.

The part that bothers me is borrowing money from the boss. I would borrow from just about anyone else before I would borrow from the boss. That sets up a dynamic that I think would get a bit strange if you ever struggle to pay it off. I would borrow from my parents, my siblings, or my friends before I would borrow from the boss. You can still do that. Borrow from someone else to pay off the boss. Your parents, for instance, will most likely be more forgiving.

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    "losing a 2,500€ investment at 25 is not as harsh as doing it at 55" - This is not true. When you are 25 you have 30 more years to make your money back, but when you are 55 you already have 30 more years of money. Commented Jun 7, 2022 at 15:43
  • Agree with @user253751. I would phrase it as "At 25, you just lost 30 years of compounded interest." Commented Jun 7, 2022 at 19:06
  • @user253751 I get what you are saying, but I'm not sure I fully agree with it. I should have left out the 2,500€ and said that making big bets in investments, relative to your income/savings, is a lot easier when you are young, and your income is small
    – Mohair
    Commented Jun 7, 2022 at 19:36
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    @DanielR.Collins and you have a harder time holding your money together with the pay you get at 25, too. Possibly even have to pay back education-related loans.
    – mirabilos
    Commented Jun 7, 2022 at 21:32

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