Funding – Can I Use Investor Dollars to Pay out Me Back My Start off Up Fees?

Issue:

I want to increase $1.8 million from angel investors for my laptop business to consider it to the subsequent level. Can I use $250,000 of the $1.8 million to pay back me back again the funds that I have presently invested in receiving my company started out?

Response:

This is a single of the most recurrent questions I get from purchasers: Can I get again all of my cash that I have invested so much in starting off my company from the new expenditure dollars I get from angel buyers or venture capital?

The small respond to is almost under no circumstances.

• Most will see it as a crimson flag and not commit.
• Most want to see you so committed, economically, to the company that you are unable to afford to pay for to let it are unsuccessful.
• If you don’t get paid back, then the company only wants $1,550,000 alternatively of $1,800,000 to carry out the exact objectives that are in your business plan.

The longer remedy is perhaps a minimal.

• At times… not typically… but occasionally… you may be in a position to pay out you back some… or have the company suppose, say a working capital loan you took out… or think obligation for a 2nd mortgage on your household exactly where you can document that all the resources went into the company.
• The other way that in some cases works is with direct payments to others that you have manufactured. For case in point, say you retain the services of that good consulting business, Ceo Resource, to help your start out up consulting, business plan and PPM prep work. Let us say, you have by now paid them $10,000. What you could possibly do is list Ceo Source as a get started up expense in the start up expenses table even nevertheless you have previously fronted the payment for their extremely worthwhile expenses. In this circumstance, you flip in the receipt soon after the funding like an expenditure report… you have accounted for the cost on the start off up prices desk… so the numbers balance. On the other hand… if you are heading to do this… be guaranteed and disclose it in entire and wonderful detail in the PPM.
• Certainly, the bigger the amount of money you want back again to you, the extra resistance from future investors.
• There are generally exceptions… a client in Chicago insisted their board members, who were being their initial round investors, get back again $1 million in start off up funding of the $2 million they experienced invested. I jumped up and down strongly advising towards it for the explanations that I just talked about, but the client often receives the remaining vote. They did permit me to fully disclose the payback in the PPM I did for them.

So, what took place? They marketed the total $5 million deal out to the very first investment team who observed the deal… and the board members acquired their $1 million. The company experienced such excellent traction on a product that was by now in the market that the expenditure team agreed to the conditions. So, even with all of my working experience, I can be completely wrong. Nevertheless… it is the only time that any customer in 30 several years has at any time pulled out a lot more than $100,000. At any time.

Really don’t depend on getting an exception.