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Ask HN: How does it normally go when one Founder invests the initial money?

8 points by marrone12 ↗ HN
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.

6 comments

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gjmulhol
My 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
One 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
Keep 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
Why 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
If 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
If 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.