Don't try this at home. How credit card arbitrage funded my first company.


Getting a startup off the ground takes time, talent, and money.  Time can be stolen from various parts of your life with some determination and prioritization. Talent can be eventually learned or acquired with cofounders.  Money's different.  You can do a lot of things to reduce the need for money, but it usually takes some capital to get your idea off the ground initially.

I still remember the night I met with my 2 cofounders of my first company to talk money.  We had been working on Openvote for about 6 months while in business school together.  It was our first startup,  and so far, it had been super fun.  We had a vision for changing the world, and we weren't afraid of the hard work or the low likelihood of success.  I remember this particular evening in part because the weather was horrid.  We were sitting in our bud's living room in New Hampshire with a wind howling outside.  Though warm inside, we were all very tense.  With no technical cofounders onboard (I was so silly in those days!!), we needed money to hire coders.  With a few other items budgeted, we had determined that our startup needed a bare minimum of $20k to get off the ground.

One of our co-founders came to the conclusion that he couldn't put any money into the company.  With a wife and a kid on the way, he couldn't justify any financial risk.  He also couldn't go without a salary.  It was a really painful moment, but we had to cut him loose as a cofounder.  I hold no judgment.  Startup drag coefficients are very real.

My other cofounder was able to come up with $4k, but couldn't risk anything more.  We agreed that I would be responsible for the last $16k.

For some personal background, I do come from a financially stable family.  My parents could have covered the $16k to help me follow my dreams.   But I didn't ask them (and neither did they offer).  The financial pressure and responsibility of my startup was to be fully on my shoulders. 

But I didn't have the $16k or anything close.  I had spent the first part of my twenties working at summer camps, pulling in a whopping $31k a year.  Then, I went to business school where all my friends had expensive tastes in restaurants and vacations.  At this point in my life, I had access to about $5k in cash and was substantially in debt with loans.  That $5k was already not enough to fund my personal expenses for the rest of business school.  I budgeted that I needed $22k to cover the startup and my personal costs.

I could have gotten a normal MBA-type internship and earned a bunch of money.  But I was also impatient.  I knew that our startup had momentum and delaying for any reason was off the table for me.  


And, so I raised my money through credit card arbitrage: $22k across 14 different cards. 


Financing problem solved.  Now we could continue with building our startup.  Of course, I knew that debt never solves money problems, it just delays them.  But for a startup at embryo stage, delaying problems can be nearly as good as solving them.  I'm going to tell you how I did it, but first, my quick disclaimer.  I don't ever recommend this strategy to anybody. Fucking around with credit card debt can do bad, bad things to you.  But if you insist...

How to Play Credit Card Arbitrage


Research the fuck out of credit cards
If you're going to do this strategy, you need to make yourself the world's expert on credit card terms and conditions.  You're playing with fire with credit card companies.   A big part of their business model is built on deceiving customers with hidden terms.  This, this, and this should get you started.  Pay close attention to the risks.  Be careful in your reading.  Most sites that talk about this stuff are monetizing through credit card affiliate fees.  (FYI—I have zero affiliate or monetized links in this post).

Check your credit score
Go ahead and get all your credit reports.  You get them free once a year.  Fix any mistakes and make sure that your credit score is as good as it can be for the time being.  While you're at it, research the fuck out of credit scores.  This, this, and this should get you started.

Find introductory APR credit cards
The game of credit card arbitrage is played because many banks offer introductory 0% APRs for the first year.  They also often offer a few courtesy checks with low cash advance fees of somewhere around 3%.  This means you can write yourself a check for a 3% transaction fee and pay it back within a year with no further interest.

Apply for all the cards all at once
Once you start increasing your credit, your credit score will drop.  But there's a lag in processing the change.  If you apply for a whole bunch of cards at once, your credit decisions will all be based on your original score.  You can stagger them a bit to increase the time you get for credit card arbitrage and to take advantage of account balance transfers which are often initially 0%; however, you risk getting denied for cards or receiving very low credit limits.

Put your cash into interest bearing accounts
I recommend uber risk-free accounts.  I usually just stick with ING's money market savings account.  The point is not to create wealth with this investment, but to help cover the transaction costs.  Your high-beta gamble  is on yourself and your startup. 

Sign up for automatic minimum payments
You'll need to cover the minimum payment every month. Set up to have each of them paid automatically out of your bank account.  It's really easy to fuck everything up if you're not super organized. 

Set the clock for repaying your credit cards
You have 12 months to pay everything back.  Get cranking on something that makes money and get yourself out of this trouble you've created for yourself...



So, yeah.  That's about it.  For me, it worked out both terribly and perfectly.  The terribly part is that our startup failed, and I never paid myself enough to pay the cards back.  At the end of Openvote, I was saddled with all this credit card debt, plus opportunity cost loss from no salary, plus no job.  It was a tough time.  Even though I was exhausted from the startup's failure, I had earned myself 6 months of working days, nights, and weekends on boring consulting jobs just to get back to even.  It sucked.

But I don't regret it for a second.  It many ways, it worked out perfectly.  It was during that really tough time that we founded FlightCaster.  I had learned just how much I love startups, and it was no longer based on some romanticized view of entrepreneurship.  My friends that deferred their startup dreams for high-paying consulting jobs got no closer to learning how to build a startup and, worse, became accustomed  to the life that a high salary affords. 

I, on the other hand, learned that the risk and hardship of startups and debt were worth it because I was happy.  And, as a Mastercard customer 12 times over, I can say confidently that that shit is priceless.

A Caveat:  Don't do this.  Don't do any of it.  Learn how to code so you don't need to hire programmers.  Get yourself into one of the bagillion incubators out there.  Find a part-time job that you can do to make money on the side.  Do something.  But whatever you do, don't fool yourself into believing that lacking $15k is what is preventing you from doing a startup.

Find discussion of this post on Hacker News.


And please come check out my new startup, 42Floors


We're fixing commercial real estate.  Forever.

Sign-up to learn more at,

and like us on Facebook.

and follow us on Angel List,

and follow us on Twitter.


Sign-up now to among the first to participate when we launch.  It's cool shit.  Don't miss out.

I would also greatly appreciate introductions to potential advisors.  We're not fundraising until the spring, but I'm happy to 'get coffee' with people who are interested in getting to know us.  

And finally, if you're searching for office space in the Bay Area right now, let me know and we'll go to the ends of the earth to help you!

I'm Jason Freedman.  
I've got a sweet-ass new company: 42Floors.  
Previously, I did FlightCaster.
I welcome connections on Linkedin,  FacebookAngel List and Twitter.

40 responses
funny, but i can't agree with the last sentence "learn code yourself", if all people can learn programming with a particular skill, the world don't need coder :D
It's a risky strategy indeed. But you're not the first: Joe Liemandt of Trilogy racked up...wait for it...$500k (!!!!) of Credit Card Debt when he co-founded Trilogy w/ some buds in the early 90s.

Truly epic story. Listen to here:

I tried this with my first startup. It worked, and my wife and I wound up with a nice little online magazine that did pretty well. Then I got cocky, I tried to do it again but wasn't as careful the first time. Now I'm digging myself out from under $60k in CC debt. Now I live by 3 before 1, make 3 before you spend 1. We'll see how that works out.
This isn't arbitrage, its just funding your company via credit cards.
Learn to code is a very good advice. You don't need to become an uber hardcore coder - you just need the bare minimum to get a MVP going.

Chances are your startup will center around an online service and all you need to start a minimum viable product is a little web development. Web development is pretty easy and a language like ruby/python can be learned by anyone with a half functioning brain in very short time.

If your MVP takes off -> hire a real coder. If it fails you just saved a lot of money (for a bootstrapped startup) on programmer fees.

Can't say I know how any serious startup could be launched for only $20k if you weren't pitching on the coding yourself...and I don't understand why why you wouldn't get a technical co-founder and save yourself the $20k in the first place. When I launched, I'd kept it secret for three years and developed it myself at the cost of around $500k of my regular billing hours. But as what the HN crowd politely calls a "single founder", coder and jack of all trades, it's my own observation that whatever coding costs, your startup's success or failure rests ultimately on other, vaguer factors, which also cost money, and which no founder, technical or otherwise, is capable of pulling together without shelling out a significant amount of cash.

That said, I do think firing your buddy who didn't have the money to pony up to the scheme was a bad overall decision. Write him a contract that requires him to spend X hours a week on the project for equity. If you have nothing for him to do, make him learn javascript. If he doesn't want it badly enough, fine -- no reason to pay people who aren't contributing.

Anyway, there's learning to code and learning to code; I know it's a hot trend right now with the business grad crowd, but truth is you're still going to need help to do something that won't be hacked to pieces by the second day. And as a long-time coder, the help I turn to for that is very specialized and costs about $200 an hour to analyze my code and let me know where the weaknesses are. So $20k starts to sound like a mighty slim budget, and DIY is great but if you get to flight-testing and realize it has to be built from the ground up again, you might be too late and someone's got your idea already. All these factors come into play, especially the ticking clock. Do you have the time it takes to learn how to code, when your idea is already ripe?

My advice to non-technical founders is, yes, find a technical co-founder. And then give them a majority share. Because if you want it done right, you have to do it yourself. And if you can't do it yourself, you need to give someone else the incentive to put two nails in where they could put in one. Don't buy them a beer and shine them on about stuff. Just cough up 51% of the equity and put yourself in the passenger seat, retaining veto power over certain types of decisions. Then light a fire under them and go for a ride.

You can reset the clock on your introductory APR by doing a balance transfer from one card to another. They'll even wave any advance fees if you call them and ask about it over the phone. Just make sure you always have a card with a zero balance on it. I did this a lot when doing my startup.
You got $31k per year in your summer camp? As a main counselor, I got less than $2k, and I live in San Francisco. :-/ No wonder our camp has such a wonderful reputation for low prices.
Great article - although I have to agree with Josh... I'm not sure how far $20K would take you in building a startup... I think maybe just up to validating your idea. As soon as you reach marketing/scaling - $20K disappears quite fast.
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