Can a new company reimburse a founder for startup expenses after funding?


10

We have started a new web based service and are close to launching our prototype. So far the effort has been self-funded by me in amount close to $15k total expenses -- mostly for development. All expenses have been recorded.

We are currently in the process of talking to investors for seed funding and getting positive feedback so far.

My question is, upon raising money, can I submit receipts and recoup some or all of my savings spent to build the business?

Any advice is appreciated. Thanks!

Founder Seed Funding Self Funded

asked Mar 3 '12 at 23:42
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Dmoore
51 points
  • I'm in a very similar situation, but my company is in the UK. I'm sure that you could claim those expenses in the UK, and think it might be similar in the US. However, I don't know how to do this. I'm not sure whether I just transfer the money to my account, or need to fill in any forms... Maybe someone else has more knowledge. – Lukeshek 8 years ago

3 Answers


5

In general you can, but your investors may require you to write those costs off and consider them part of your "contribution".

I would probably swallow the costs myself, as investors want their money to be spent on some new stuff, not paying down what they can already see. That is, they want to move forward as quickly as possible, and may (reasonably) see a founder syphoning off the funds, however well-meaning, as less than optimum.

answered Mar 4 '12 at 00:45
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Steve Jones
3,239 points
  • You "can" -- but "should you" -- that is the critical point! I agree with Steve -- my experience is that the investor wants their money spent on moving the company forward rather than catching up to the starting line. – Joseph Barisonzi 8 years ago

3

It's a bad idea. You're showing that you are risk-averse. If you put this much value on upfront capital, they're going to want a disproportionate amount of stock in return for cashing you out. In a way, they can use it against you. Hold off and let them know the "true" value of that 15K in what it has grown into. You can then ask for a higher percentage of the company or make them pay more for additional stock.

The big question is, how much over 15K is the company worth? Because if it is only worth 15K, that doesn't leave you with much stock.

answered Mar 4 '12 at 03:54
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Jeff O
6,169 points

1

I gather from your use of "we" that you have a team working on your startup. I think the answer to your question depends on whether the $15k is your only contribution to the startup or whether you've contributed $15k in addition to, e.g., intellectual property, sweat equity, etc.

If the $15k is your only contribution, while others on your team have contributed something of equivalent value to the startup, then I'm inclined to tell you to bear the costs as your fair share of getting this thing going.

If you've given $15k in addition to your IP and sweat equity, and your total contribution is therefore dispropotionately greater than that of your other founders, and it's not already reflected in your equity structure, then I don't think there's anything wrong with pointing out that discrepancy and asking how to address it. One way to address it might be to tinker with your equity structure, but there might be tax issues associated with that.

Another way to address it would be to have the startup execute some kind of note for the debt with you deferring payment until, e.g., the closing of your first round of financing, indicating that the note is to repay moneys already spent on IP development.

I suppose you could achieve the same effect by submitting a stack of receipts to your startup for reimbursement post-funding, but I'd be sure to discuss it with your investor(s) before you do that.

answered Mar 4 '12 at 01:40
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Robert Blasi
142 points

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