We have all heard the glamorous stories of entrepreneurs becoming billionaires by maxing out their credit cards and launching startups out of their garages.  It does happen, but for every success story there are many failures.  While this doesn't mean that entrepreneurs should cower from a challenge, there are lessons to be learned about how to mitigate some of the risk in the venture.

I was on one of Joe Rubin's Funding Post panels yesterday and I heard another panelist provide a bit of insight that I thought was worth sharing.  The panelist made the point that entrepreneurs should not over extend their personal finances when starting a company.

While this advice does run counter to the financing strategies prevalent in entrepreneur folk lore, I agree with it.  When an entrepreneur assumes too much personal financial distress they lose the ability to invest their time in building a business.  Put another way, as a person approaches bankruptcy they lose their freedom to be entrepreneurial.  If a mountain of credit card payments are looming, you may need to get a day job, slowing the development of your company.

As a result, it's important for entrepreneurs to be thoughtful about avoiding personal financial distress early in the development of their company.  If you have the assets to self-fund the company with ease you won't have a problem.  If you don't you may want to seek third party capital early on.