Is it best to skip family and friends as a source of funding for a startup?
When it comes to raising money for a startup, every one talks about trying the 3F's first, friends, family and fools. But it seems like this is not really an option when you consider that they are non-accredited. Is it best to skip the 3F's and focus on Angels? Can anybody share their experience with raising funds from family and friends?
3 Answers
It depends on how ambitious your startup is. If you know you'll be getting money from prominent VCs and famous super-angels in the next 6 months, skip the friends & family.
If, on the other hand, your startup is more likely to look like a "lifestyle business" for a while, then go for the F&F money.
Of course your friends are not accredited investors. You may want to check the exact consequences with a lawyer, but what could happen is that they later sue you and pretend that you misled them in investing and want their money back. In theory it could happen. But by definition, they are friends & family, so they won't. Just don't get money from the soon to be ex-husband whom you never got along with.
Non-accredited? Who cares?
The reason for the 3F's first is that the cash is available. If you try alternate sources of funding first, and go through the pains of continual rejection, you'll understand why people use friends and family - because they'll invest.
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I certainly see the benefit of getting funding from friends and family. However, I am concerned if there would be legal issues down the line. Also, if the VCs who may enter the picture later on would consider this to be a problem. Or should I just ignore the long term issues and raise funds from friends and family and hope for the best. – Anil 14 years ago
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I disagree with you about getting money from F&F just because everyone else rejects you... that could be a warning that your product or service isn't that great to begin with, it is a good idea to validate your idea by getting people that do not know you to invest in your idea - IF - funding is what you are looking for. – Ricardo 14 years ago
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@Ricardo, it's not just because everyone rejects you. The reality is, pulling money from outside sources is incredibly difficult, even for excellent ideas. If you need some cash to get started, FFF can be a really good source of seed funding. As Alain said, if you know that you'll be pursuing Angels and VCs in the near future, then you're likely better off skipping the FFF stage. – Elie 14 years ago
