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Ask HN: How does it normally go when one Founder invests the initial money?
Hey HN, thinking about starting my first company. The business co-founder is going to be putting up the initial money for server costs etc. until we get financing.
How do you normally write a contract around this? We've all agreed to split the equity evenly. Should we handle the money he puts up as a loan to the business? Is there something else we can do?
Tried googling for stuff, but had a tough time finding any resources.
- gjmulhol 12y agoMy company did this. I fronted most of the money as a loan to the company (in total I want to say it was <$10k) and the company paid the loan back interest free when we had the money in the bank. I was okay with it, and my 2 cofounders put in what they could (also as a loan). Haven't looked back. Never caused an issue.
- wmf 12y agoOne way to look at it is to imagine what you would do if the money was put up by a third party (angel investor). You'd probably do a convertible note or SAFE. You could treat money from the co-founder the same way, keeping it as a separate line on the cap table. This would lead to the foundvestor getting more equity so you have to decide whether you can live with that.
- saluki 12y agoKeep things simple. Just note the amount he puts in as a simple loan to the company. Once you're up and running and profitable have the company write a check to him to repay him what he fronted to launch the company. Good luck in 2015.
- sharemywin 12y agoWhy spend a bunch of money upfront on servers? you should know how much you'll save by switching to a server but just use a amazon or something like that until your sure you can build something people want. Also, what happens if the business doesn't work. Has this person invested his life savings?
- atian 12y agoIf you don't want the money contributing to equity, you're most likely looking at a loan. Just write some legible words stating that this is a loan and email it around with the other guy agreeing to it. I only know from experience from incorporating an LLC. If it's anything else (S/C -corp) then I have no idea.
- debacle 12y agoIf you are looking at a start-up trajectory, plan to take on additional money, etc, treat his money like a third party investment and value it separately from his role (and equity) as a co-founder. To properly do this, you'll have to come up with a reasonable valuation for your company. It should be somewhere between 100k and 200k if you are starting from zero. If you are looking to bootstrap, then treat the money like a loan.