As a founder, how should I structure putting my own initial capital into my startup (~$50k)? Should it be as a simple promissory note or as a convert?

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JASON LEMKIN

I think it depends on how important the $50k is to you.

One option, if that’s literally all the money you have on the planet, and you raise enough outside capital … say > $1m … is just to get paid back.¬† All, or at least some.¬† As long as it’s < 5% of the round, the investors may be OK with this if it’s your entire life savings.¬†¬† They key is to be up front here.¬† Don’t surprise investors here with this idea later.¬† They may freak out, and see you as not committed.

Another option, if you have significant savings, is to convert into the first preferred / investor round via a note, discounted or otherwise.¬†¬† That’s OK.¬† If you have the capital to invest.

A common middle ground with multiple co-founders is to convert instead at a lower price, or the common price.¬† If you took all the financial risk early, paying the preferred price later doesn’t necessarily make sense.¬† Maybe, you should get more common for it.¬† The investors won’t care that much if their pre-money doesn’t change.

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Published on January 18, 2016
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