Is there a specific legal term/structure for this kind of raise? I essentially want to eliminate that typical investor rejection reason of 'I don't want to be the first one in.'
Lots of questions before I could answer this. First off, how much money are you looking to raise? Second, based on your question, I'm assuming you are looking for investment capital, not donations like Kickstarter. Correct? If you are looking to raise less than $1million in investment capital, look into online platforms operating under the Crowdfunding Regulations. Examples would be both Seedinvest and Wefunder. If you are raising more than $1million you are most likely going to need to get an investment banker involved. With all of these venues, the deal won't close until the target is reached.
It's already been said that this is usually a format for crowdfunding, but if you think that crowdfunding avoids the reticence to be the first investor, you're wrong. It is understandable that you might not want to reveal your funding efforts through a "public" platform. And it may not even be appropriate to use such a platform depending on what your business concept is. Crowdfunding with typical small investors is really only appropriate for some kinds of companies, ones that make consumer goods. It rarely works for services or b2b concepts.
If you're not willing to spend money to make money, referring to crowdfunding site fees, you really don't understand what it will take to raise funds. Whether it gets categorized as a service fee, a finder's fee, or just the expenses associated with pitching your concept, you WILL pay some amount of money to raise a bigger amount of money. That simply must be accounted for in your ask as the overhead of raising capital, even seeking a loan.
There are numerous restrictions on crowdfunding, not just the cap on the total dollar ask. And whatever you call it, you still need to understand the basics of investing in determining what format you are accepting money and what return you are providing to investors (stock, equity, pre-purchased product, royalty, debt of whatever kind, etc.). It's all rather complicated and regulated, and you're not going to get all the answers you need here when you're cagey about your intent and conditions.
There's nothing about crowdfunding that REQUIRES the money raised to be held back until the goal dollar figure is reached. That's just how Kickstarter formats it to reduce risk for small investors. On other platforms like Indiegogo, you don't have it. And because of the different risk level, the platform managers charge a different fee structure for those types of raises.
The same decision can be made with your own group raise. You can decide to escrow all the funds raised until you reach your goal, and this reduces risk for investors who think their money might be wasted if you can't raise the entire amount. It doesn't eliminate the reticence to being the first investor, but it does reduce the risk to all the investors' monies. It's all in the term sheet you will create that describes the conditions of investment.
No one is afraid to be the first investor if your idea and execution are top-notch. They are afraid when your idea is risky and they don't think they'll get their money back. Any investor candidate who is willing to convince a friend that they should also invest is partly spreading the risk, but is also risking their own reputation. If you think you have a network of friends who are willing to invest, then first decide how you're going to assure them their risk is low, then worry about the format in which you hold their investment.
Loans from family and friends are not crowdfunding. Crowdfunding uses the general public.
One way to do it would be through an escrow arrangement. The funds are held by a trusted third party (bank, lawyer, etc) - the escrow agent. The escrow agent releases the funds to the startup under certain conditions. In this case - if the target amount is reached by a certain deadline. Otherwise, the funds are returned to investors. The key problem with this approach is the cost of the escrow agent.
Another way would be to collect undertakings to finance from investors, without them transferring the funds until the startup collects enough such undertakings. The main problem here is that an investor can change its mind and I doubt the startup would litigate such issue.
Can you use some online service like https://www.escrow.com to do this? I guess it would depend on regulation and how tech-savvy are the investors.
@Stephen Ferrando , I'm looking to raise just shy of $1M, but I'm not interested in crowdfunding platforms. Too many fees and too public; I plan to raise from my own network. An advisor/investor of mine, a (not douchey) Wall Street broker, is confident he can raise all of it on his own, but I'd like to hedge my bets by approaching my network for maybe half of the ask.
The crowd-funding that is a part of my business does not operate this way. You are able to have funds direct-deposited into a bank account weekly. Let me know if you are interested in more information.