Incorporation · Banking

Incorporating a bootstrapped company, how to properly fund post-incorporation?

Daniel Katz Founder, startup product guy, pilot

April 15th, 2015

I started Venn (venn.works) a few months back, and am going to be incorporating this week via Clerky as a C-corp and opening an account at Silicon Valley Bank shortly thereafter.

Assuming I won't be taking seed funding until the end of the year, what is the best way to actually fund the company? Issuing 10,000,000 shares @ $.00001 won't put much money in the bank account :) Expenses aren't very high, but even for the several hundred a month I am spending, what is the proper way to pay for these? Expense on a personal credit card and list as debt for the company to repay?

Thanks,
Dan

Mike Shields Founder at Startup

April 15th, 2015

Incorporating and running expenses through that entity (imho via shareholder loan) is useful on a number of levels.  However in my experience when it comes to a "first round" of funding the investors and/or lawyers will dictate terms (probably into an entirely newly set up clean corp) so any angst you have over shares etc will be irrelevant in the long run. 

George Lambert Interim CTO - CTO's for Hire

April 15th, 2015

Keep good books but every time you go to accept money, you will have to deal with changing valuations. Keep that in mind and focus on getting your business growing and profitable.  If you are successful in your business then what you spent will come out of future profits to offset expenses.  If you are unsuccessful it will not matter.  Focus on growing your business today, keep your liabilities to yourself and others clear, and leave the valuations to finance and legal people.  Doing anything else will distract and disappoint you and others.  

Daniel Katz Founder, startup product guy, pilot

April 15th, 2015

Thanks, George! I'm not concerned with re-payment of these expenses or anything like that...was really just trying to figure out what the correct/legal way of doing this is. It sounds like adding a few thousand to the company bank account may be more of a hassle than it is worth and your advice would be to just keep track of the expenses and pay for them myself?

George Lambert Interim CTO - CTO's for Hire

April 15th, 2015

I put money in as a loan to the company, and keep track of deferred compensation, due to a strange rule that was implemented in NH a few years back - that was taken off the books about tracking executive compensation at market value.  That can always be discounted or written off the books at investment time, but it keeps things very clean. 

Marc Rowen

April 15th, 2015

At this point, and for a few hundred per month, I would just fund it yourself without expecting the company to repay anything. i don't think it makes too much difference whether you fund it from a personal credit card or transfer your own funds into the company's SVB account, and then pay things from there. George pretty much summed up why.

I'm in a similar situation, although I waited to open a business bank account until I did some fundraising. I'm keeping good records of my expenses (which are thousands per month), but more so I have a precise idea of total costs, as I evaluate against my own projections. That has allowed me to tell investors how much I've also invested, above and beyond sweat equity.

Anonymous

April 15th, 2015

I guess I'm confused by this question - or possibly you're confused. There is no relationship between incorporation and funding. Marc is right - you can either put a loan or better yet give money for equity. But bootstrapping means you give some of your own money and/or it's self sustaining.

Daniel Katz Founder, startup product guy, pilot

April 15th, 2015

Right - definitely understand that incorporation/funding are separate. I am setting up a corp now for liability reasons (and to get it taken care of...), and was mainly confused on what changes when going from an unincorporated venture to one that is, both of which have no institutional funding behind them.

It sounds like putting money in for equity may be setting myself up for some weird valuation scenarios and I should either put the money into the business bank account as a loan, or just continue paying from my personal accounts.

-Dan

Kate Hiscox

April 15th, 2015

Expense everything you're spending on for now and you'll figure out down the road what to do with it. Until you do an equity investment, you can avoid a valuation and stick with your $0.0001 price per share. 

Deferring compensation was mentioned above. In my experience, an investor will always want that off the books and it doesn't necessarily send the right message. So unless there was a hugely compelling reason to do this, I'd avoid even recording it. 

Jessica Alter Entrepreneur & Advisor

April 15th, 2015

If you're not paying anyone or developing anything priority then I'd say wait to incorporate all it does is advance the clock on when you pay taxes. A couple hundred dollars a month isn't really worth it IMHO

Karl Schulmeisters CTO ClearRoadmap

April 16th, 2015

Well it does shield you from liability and limit debts.  But what you might consider doing is filing as an LLC until you actually go for funding.