Questions

As a founder, how should I structure putting my own initial capital into my startup (i.e. ~$50,000 from my bank account)?

Simple promissory note? Convertible promissory note? What's more common and how would future investors react? And if convertible, should there be a discount or a cap on it? Why or why not? I've read there are complications here with liquidation preferences and so forth.

3answers

Unless you have a need to show a substantial equity, usually starting the corporation (assuming that's the type of entity you want) with $1,000 is ok. Then the remainder ($49k in this case) is entered as a loan. That way, once you have the cash back in the business account, you're not worried about taxes and can be repaid the loan directly.


Answered 6 years ago

That depends on what you are looking for on the long term.

Are you planning to go for an IPO or no ? If yes ? When ?

What is the expected growth for your company's capital ? would it reach 500 K ? do you need to raise funds ? how much ? In this case , would you accept your 50K to be a 10% ? or 100% ? How much capital you need to raise , and how much dilution of your equity will you accept ?

Your answer to these questions will lead to the right answer to yours.

Thanks
Tamer Maher


Answered 6 years ago

I think the KISS principle should rule here. It's easy to get wrapped up in the future success of your startup and the precautions you should take now to protect yourself. I'd suggest not overcomplicating it and focus on other things that are more important.

Also, investors want to see you have skin in the game. I would expect to see a cash injection into the company. A note would lead me to believe that you are expecting the company to fail and you want to be in line before equity investors to get repaid in the event of liquidation. It'd be a red flag for me.

If you take on investors, there is a good chance they'll change the company structure anyway. If you have any questions, let me know and we can find a time to talk.


Answered 6 years ago

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