How do I put money in my startup as a founder?


Last updated on July 16th, 2017

I've bootstrapped my company so far and after I officially incorporated it I put a few thousand in the bank (which has now run out). I never documented this as I couldn't find any template for a gift deed to a company. However now I need to put in a much larger amount and would prefer it be treated as an investment. I'm taking on a cofounder in the next 2 weeks (who is not investing any money) and hoping to raise a seed round by the end of the year.

Should I use a SAFE or a convertible note to document this money? I really can't afford to hire a lawyer and am hoping you guys can provide some good advice!

Luke Szyrmer Founder & CEO, Launch Tomorrow

July 18th, 2017

This can unfortunately become a point of conflict with cofounders, if you don't clean it up. I've seen this happen with a close friend of mine. It didn't help that he doesn't have a business background, so he didn't know if he was being tricked unfairly or if his partner was just doing something complicated.

Basically, you need to:

1. Figure out how much you put into the company so far using old bank statements. (not easy but doable), ideally using accounting software or at least a spreadsheet. Hire a bookkeeper if you can afford it, as it's hard to do this because you're so close to it. This way you have an objective eye. If you don't know exactly how much this is and you can't document it, you are potentially setting up yourself for failure (and also the company), in case of a disagreement with a co-founder.

2. Choose whether you want to treat all of the money put into the venture so far as a director's loan, as equity, or one of the instruments you mention. I would suggest the simpler--the better, particularly if you can't afford a lawyer. Simpler means you can move fast.

3. Share this information with your prospective co-founder and document that you have (when and where and what was communicated), even if it's over email. Make sure they understand the implications.

Larry Lipman Founder and Industry Expert

July 16th, 2017

Last I checked, most LLC or Corp set up documents have a section where you indicate the amount of capital each member or shareholder puts into the biz. Then you run down to the bank -- after getting a tax identification number and out the cash into your account. Pretty straight forward stuff. BUT you should have a document. Tons of them for free online

Paul Benedetto Many time entrepreneur, advisor and financial guy

July 16th, 2017

Like others have already mentioned, any transactions into and out of the company should certainly be adequately documented. A couple points related to your equity specific question. If you remain the sole owner of the company at this time, I don't see any reason to over-complicate things by having a SAFE note, etc.; in this case you are only diluting yourself... Whatever class of stock or units (LLC) that have been recorded for your initial capitalization, just add to it for documentation purposes. The money comes in as a debit (receipt) and you increase your tax basis in the company (credit to equity). If you want to treat some or all of the money infusion as a loan, then document it as such in a promissory note and apply some market interest rate to it.

If you have other investors right now, then the story changes. Again, you want to document. IF you are going for a larger financing and one that may have preferential terms (e.g. preferred stock), then you may want to hold back some of your funding and then "participate" when the round occurs. Doing so will give you the same rights as the others in that share class. This may come in handy, not only to keep your ownership from diluting as much, but also if there become Board decisions that are votable by ownership in one or more stock classes. I've seen founders lose their board seats and/or control of their company in these as a result of dilution and such preferred rights.

Steven Bate Healthcare entrepreneur improving patient care

July 16th, 2017

You will want to use both the past and future cash investments to your tax advantage when you begin drawing a wage in the future, such as repayment of a shareholder loan or equity and dividends, etc. You are best to speak with your accountant to understand what fits your circumstance best.

Aurangzeb (Zabe) Agha Entrepreneur come techie and product manager

July 17th, 2017

Talk to an accountant. I had bootstrapped my startup and documented everything (Excel, copies of checks, etc.) and was able to recover my investment when we did our fund-raising.

Kathleen Schmitt

July 18th, 2017

You can treat your personal funding of your business as a loan to the company or as equity. I assume you have separate business and personal bank accounts, yes? From an accounting point of view, equity money you put into the company can be treated as an owner contribution' money you take out for personal use can be treated as owner draws. If you are treating the money as a loan to the company rather than an equity transaction, money you loan to the company has to earn interest and the note should have a maturity date. BTW, your initial funding of a few thousand is documented by the bank transactions on your business and personal bank statements. What kind of corporation are you? S? C?

Barry Burr founder, Barry Beams llc, a startup to re-light your night.

July 16th, 2017

There might not be a way to answer your question without sounding snooty. You need to use a competent business lawyer. Your business entity exists as an FEIN. It must remain completely separate from you as an individual existing as a social security number. There should have been a transfer of all rights, title, and interest from you the individual into your corporation when you incorporated. Now you're in a legal pickle that you need a lawyer to get you out of.

Charles David Dreher We Fund StartUp & Early Stage Companies-Exclusively since 1998

July 16th, 2017

Hello Anonymous,

I suggest that you read the first two chapters of, "The Secrets of Wall Street - Raising Capital for Startup and Early Stage Companies" by our CEO Timothy Daniel Hogan. I know you will be glad you did. Here is a link to a complimentary copy:

All the Best, Charles


July 16th, 2017

This happened to me. I documented the money I had invested into the company via an email. Then when we could pay a lawyer, it was formalised in the form of a directors loan (i.e. I loaned the NewCo money). Which is paid back to me, of course. Good luck!

Arvind Agrawal Founder Addwit Learning | Speaker | Problem-solver

July 16th, 2017

Go for a simple, well-written and detailed MoU. Should be enough. Look also for the book Slicing Pie; will help you a lot.

I feel, not having recorded the past expenses is bigger error you committed.