I'm a first time pre-seed founder preparing for my seed round.
My co-founder was managing our financials/admin which I trusted him to do, as he has this experience in his former companies.
I would occasionally look in, but didn't find anything out of place. Until I looked this week. We have only 7 weeks of runway left.
He's reported to our investors and team that we have money until September/October. This is obviously not true given the balance in our bank account.
Events: 1. I saw that he has taken out multiple payroll advances into the future, 2. Occasionally increased his rate of hourly pay (as it's processed as a bulk line item), 3. And sent himself money directly from our bank account.
I'm alarmed, and considering taking action as it puts the company, and employees at risk, as well as our DD for the investors for the raise.
What kind of advice or feedback do you have? Could this be fraudulent? Misappropriation of funds? What would an investor think?
Thank you.
Yes, obviously, it could be.
How much of the business does your co-founder own?
In any case: Gather all relevant documents, including bank statements, payroll records, and communications. (Emails, text messages, etc.) Then contact your partner and tell him you want to run a third-party financial audit. If you're in a one-party consent state, record this conversation. These are necessary steps.
If your partner is not majority owner, you should also limit his access to financial accounts once you're done gathering all relevant materials.
Could be that he's done nothing wrong. Could also be that he's frauding you, bigtime.