How Founders Can Recover & Estimate Initial Expenses
1) How Do Founders Recover The Initial Funds They Invested In The Startup?
For small amounts, many founders just forget about recouping and personally absorb the cost (for instance, incorporation costs). For more significant amounts, however, founders can structure the funding of such expenses as a debt or convertible loan for the company.
Structuring the transfer of funds as a loan is especially useful when one founder is contributing significant funds and other founders are not. The move essentially treats one founder as an investor and that founder gets equity as if he did not invest, but may also receive preferred stock upon conversion of its convertible debt.
Sometimes that loan can be structured as a regular loan, to be paid once additional funds are infused into the company. It should be noted, however, that many investors don’t like that option and prefer that such founder convert the loan or waive it altogether.
In today’s world, where many startups bootstrap or finance a minimum viable product (MVP) out of their own pocket, this issue has become more and more relevant.
2) How Can Founders Calculate Startup Costs?
There are a number of resources online to help give founders a ballpark figure on startup costs. These tools take into account various expenditures for things such as logo & website design, rent/security deposit, computer & office equipment, office supplies, licenses, payroll, and taxes.
Here are a few startup cost calculators:
• Wall Street Journal Startup Calculator
• Bplans Starting Costs Calculator