Once you receive cash from your VC round, do you have to get approval from the VC for every future expense?

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JASON LEMKIN

No, not at all.  Only material expenses require board-level approval.

But …

Be careful with “quirky” expenses, especially personal ones, even if they are immaterial in size compared to the round.

Examples include:

  • Cars and other significant personal expenses, including personal rent.  Investors get really concerned when you have the company lease a Porsche for you.  Even if $1299/mo isn’t THAT much compared to a $10m round.
  • Company trips that are a smidge too nice.  Group trips are a great team bonding experience.  Just make sure they are stage-appropriate.
  • Real loans.  Just don’t ever take loans from the company, for any amount, without board approval.  Never.  Ever.  Never.  There may be good reasons for a company to make loans to its founders, especially non-citizens and others with credit challenges.  But NEVER do this without getting pre-approval from the Board, no matter how small the amount, and make sure the approval is documented in the minutes and/or otherwise.
  • Informal “loans”.  Whatever you do, never, ever, never “borrow” money from the company without board-approved documentation.  I can’t tell you how many founders feel they are “owed” money from a start-up and just pay themselves back without approval or documentation, or even telling anyone.  This isn’t OK.  These founders get fired.

Anything that smacks of self-dealing will breach an implied trust with your equity investors.  They don’t want you to starve.  But they don’t want you getting rich, or even really, too comfortable, off their investment at least until you are big enough (worth $X00m+) to take secondary liquidity off the table in agreed-upon terms in a venture round.

Do any of these, and your board won’t really trust you again.  Do 2 or more, and they’ll begin to feel like they need to put their own person in as CFO.

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Published on April 18, 2016
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