Fundraising · Friends and Family

Going to Friends and Family for Funds

David Gold Mar '20: New project. 1,000 customers and profitable. Before: Helped scale saas $1M to $75M ARR

September 16th, 2013

Everyone has heard of this as an option for getting your first round of funds, but who has actually done this successfully?  Seems to me like it's an attractive option at face value but has the potential to damage pre-existing relationships.  What other channels would you go through in order to secure funds for the start?

Mike Brunzell Director Digital Platforms at Benjamin Moore & Co.

September 16th, 2013

We borrowed some early money from family members to help w cash flow.  We paid it back as opposed to providing equity.  Equity was preferred from the family members but we were not ready to go there.  For a higher level of funding you should consider Angel Investors.  There are a lot of good people out there and you will receive (ideally) help with your business as well.  One problem with borrowing from people that are not professionals is that they may feel entitled to provide advice based on their investment.

Michael Barnathan Adaptable, efficient, and motivated

September 16th, 2013

I know somebody who did it, raised about $15k, but I could never bring myself to do it. It seems better to save up the seed money yourself, or go out and crowdfund it in your community.

Mohammad Hashemi Product Management & Payments Professional

September 16th, 2013

I prefer looking at former employers and colleagues. If you've worked at startups in the past, it's very likely that you know someone with the right mindset and the risk appetite to want to consider investing. 

These are usually colleagues or employers that you also consider to be friends. The fact that you know them from a work setting also means that they understand that this is a business decision and comes with its risks. So it's less likely to damage any relationships. 

Gil Benton Entrepreneur

September 16th, 2013

Friends and Family rounds can be very tricky, but I have done it successfully. You have to be very up front with all the information and the risks of the company. They need to believe in you and the business AND understand the risk/reward. Valuation can be most difficult due to the fact that if you over value the round, when you bring in professional investors, the value will be more accurate and may hurt your early investors.

Fahad Siddiqui

September 16th, 2013

Usually friends and family tend to be uneducated investors. They don't understand the risks of startups, and only look at the upside. 

The relationships and awkwardness aside, I would stay away from it, just because it puts the wrong pressures on you once you've taken the money. 

If it's love money, then you have no one to answer to. If it is an investment, that someone is looking for a return for, then you will be answering to someone who is not qualified.

If the goal is to become fundable as soon as possible, and get some educated investors on board. Take a loan, because you will pressure yourself to do what it takes. 

Mark Sendo Founder, CEO, Forbes Contributor, Conference Speaker, TechCrunch featured story twice

September 16th, 2013

I have actually raised over $2 million in the last 10 years using friends and family.  What's important is to disclose all the risk, not just the opportunity.  iF someone cannot have their friends and fam invest then they don't truly believe.  And  would suggest providing periodic updates.  

John Wallace President at Apps Incorporated

September 16th, 2013

I've done it, but wouldn't do it again. It's too hard making dispassionate business decisions regarding people that I know and love. If it's too early for an angel to invest, then it's too early for family and friends too.

Paul Travis Multifaceted Online Executor: Product Marketing to Program Mgmt. to Business Development

September 16th, 2013

I've done it. As Mark (and others) have said, be fully transparent with them so you can look them in the eye 10 years from now without "accumulated baggage".