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A friends & family round …

Any tips for a Friends & Family round? I’m working on figuring out my valuation and have been bootstrapped up until now, but I know I’m going to need to get some additional funding in place soon. As F&F normally don’t get how startup funding works, how much information should I give them to not overwhelm? Any best practices?

  • Two cents: Approach people who can truly afford to lose it (duh) and make sure they know investing in a startup is just short of lighting it on fire (i used that line verbatim). Work with your 10-page deck and walk them through it, they likely won’t need anything more. I would also have a minimum investment, meaning, I would avoid the buddies wanting to throw ‘a few thousand’ at it and keep disciplined with a minimum (we used 25k). Its easier to manage 3 or 4 people who can afford to lose $25k than managing 15-20 that are sweating 5k like its a march madness bet on a 16 seed. If you don’t know your valuation, just use a convertible note for now, they likely wont care anyway because they are ultimately investing in you. You can convert the shares later and the discount to conversion will give them an incentive.

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  • A few other tips:
    1) Set boundaries: let them know how and with frequency they will be updated. You don’t need multiple people calling you constantly checking up on their investment.

    2) Escrow the money: tell folks how much money you need to get off the ground. Tell them you won’t spend a dime of their money until you raise that. Then tell them if they back you that you’ll put the money in escrow until you raise the target. You want to avoid people waiting to put their checks in until others participate. Slows everything and people get cold feet.

    3) Be realistic about valuation: I’ve seen people raise FF rounds at insanely high valuations because the investors didn’t know any better. Founders give themselves a pat on the back, maybe head to a bar and tell some chick how much they’re worth on paper. Douchebaggery at its finest. Then the company starts building and needs to raise institutional money and the grown up money forces a down round. Stuff gets ugly. Converts can avoid this.

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