Questions

What are some common terms for a family-and-friends funding round of a startup?

4answers

There's a lot of options, but a form that's getting popularity recently is the SAFE (similar to a convertible note) which was popularized by its use in Y-Combinator deals.

It allows you to set a valuation cap on the round for those early investors and set a discount for their early participation on whatever the valuation of your round ends up being. It's a great way to postpone the valuation and terms to a later date, especially if you still need to prove out your business model.


Answered 9 years ago

I don't think there are any "typical" terms for startup funding from family and friends.

I have two modes of thought about this and follow one.

The first is this: just about every successful non-VC-funded business made it through the first awful year of scrambling and serious errors by the grace of six figures of funding cobbled together from anyone who would throw a couple bucks their way.

If we take this to be true, then the absolute psychopathic thing to do is pull ever dime you can from friends and relatives.

Personally, though I believe in my business and have gone to the bone many times for it, I can't stomach that.

The thought of people I know and love losing money they are depending on makes me want to throw up.

Money issues, as most of us know, can poison and ruin relationships.

So my second mode of thought about startup funding is this: Don't ask for or accept funding from friends and family unless you are both fully aware and have stated out loud (and maybe even have it written down) that it's OK if you lose every last cent of it.

So here's my real answer to your question:

If they're comfortable never seeing that money again, and are treating it essentially as a gift to you, with no potential hard feelings or expectations attached, THEN it might be all right to accept money from friends and family.

Probably a good principle for accepting money from anyone, really. But your friends and family...you have to LIVE with these folks. Best not to mix business and money with the ones you love.

That's my point of view, anyway.


Answered 9 years ago

Some common terms for a family-and-friends funding round of a start-up are as follows:
Avoiding the Pitfalls: Friends and Family financings are always the easiest to complete - often taking less than two months from start to finish. Friends and Family rounds usually raise $25,000 to $150,000 in total – the amount depends a lot on who your friends and family are.

Over-valuation: The most common way entrepreneurs get into trouble and end up treating their friends and family unfairly is by over-valuation. This causes serious structural problems that must be rectified before the next round of financing.

Legal Requirements: All financings and share sales are governed by securities legislation. Entrepreneurs must know what the legal requirements are before accepting that first dollar of investment, even if it is from a family member.
Besides if you do have any questions give me a call: https://clarity.fm/joy-brotonath


Answered 4 years ago

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