Fundraising · Friends and Family

How to proceed on raising capital from friends and family and what to give in exchange?

Jamil GCIH Jr. Computer Engineer, Computer and Network Security Specialist

July 7th, 2014

I am trying to assess the right way of raising capital from friends and family at this point in order to fund part of my current project.

I am personally investing about $25k+time in this venture and I need to raise about twice that in order to be able to fully commit to it. Additionally, I want to avoid initially relying on banks or VCs/AIs in order to get the necessary money until I have a functional platform for my project (something concrete that I can show to potential investors).

So the question is, what is the proper way to raise money from friends and family and what do you give in exchange?

Any good examples or success stories? 
How much were you able to raise and how did you convince our fmaily/friends to provide you this funding?

As additional context, I am working on finishing our fully elaborated business plan with my partner which covers pretty much every aspect of the business and model. The business will soon be registered as a corporation.

Thank you.
As a founder, you’re always in fundraising mode (whether active or passive). In this course, we’ll teach you how to successfully raise follow-on capital, establish a valuation for your company, build an investor pipeline for your next round, and more...

Alex Littlewood

July 7th, 2014

Take money only from F&F that qualify as "accredited investors", which simply means they earn $200k+ as individuals, or $300k+ as a household, OR they have $1M in net worth not including primary residence. It's not a formal thing, you just need to make sure they qualify. (Double check my numbers) Raise the money on a convertible note, there's lots of resources here and elsewhere on how convertible notes work.

Sean Hurley Strategic Marketing Leader with strong financial results for growing organizations

July 7th, 2014

Jamil:

Condense your business plan to a 2-page Executive Summary and include 3-5 year pro forma to get started.  I am happy to help you.  Let me know if you would like to chat.

Phil Strazzulla

July 7th, 2014

I had a friend raise money from a few of our college friends.  Everytime we went to dinner, or hung out, the friends would also pester him about how the investment was doing...I think it hurt their friendship a lot.  It ended up working out in the end, but for the first 2 years my friends were very annoying about it.

I'd make anyone that invests realize that they will almost certainly never see this money again, and that they are not allowed to bring it up unless you do.

Nadia Shalaby Entrepreneur

July 10th, 2014

I second Alex's advise and Phil's concern. Investments and businesses come and go. Family and friends are there to stay. Unless one of them is pestering you about investment, and they are "super-accredited" -- meaning super wealthy and willing to take multiple risks on such investments, 

Also, raising money from people you do not know set a much higher bar that you need to overcome, which forces you to refine your vision, plan, etc. And if you can't sell it, perhaps you should step back and reconsider. You need to be able to "sell" successfully at whatever stage you are. 

Glenn Moeckelmann Innovation Technology Lead at One Hope International

July 13th, 2014

We involved certain members, close friends in some of the early core meetings and made them feel that their indirect support via funding is vital and huge part.  We raised 100K initially, then 60K.
Being honest about the risk and that they may never see the money again helps but they are investing in you and your own due diligence.  Love to share more details if it helps...