Hello and welcome back to Startup Curious, where we discuss things you should know if you’re thinking about working for or starting a startup.
Continuing on our theme of talking about all things investment, I want to discuss friends & family rounds. In the typical startup journey, these usually come before or at the same time as when you might be raising money from angel investors, so it seemed like a good follow-up to last episode.
Friends & family rounds are exactly what they sound like - people who know you personally giving you money to start a business. Of course, this is something that not everyone has access to, and if you’re in a position where this is a possibility, you’re very lucky.
However, is raising a friends & family round a good idea? Honestly… I tend to lean towards no, if you have other options. As I mentioned a few episodes ago, adding investors into the mix already adds a ton of pressure when it comes to building a company. Now, what if one of those investors is your aunt who you see every holiday? And what if the company doesn’t go well and you lose all of her money? Yeah, you’re just setting yourself up for awkward situations.
The other thing that tends to be true about raising from friends & family is that many of them won’t have a realistic expectation of how to think about returns. Unless they often invest in startups, they may get impatient and frustrated when things seem to be taking longer than they think they should. When you compound that with the fact that you have a personal relationship with them… yeah, things can get messy.
Of course, if you don’t have any other option, or you have a friend and family pool of savvy startup investors, then a friends & family round may make sense to get you to the next stage of your company. But as long as you have other options… I would research those first.
One thing to note: if you do end up raising a friends & family round, treat it like any other round and get all of the proper paperwork in place right away. It’ll save you a ton of headaches later, trust me!
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What is a friends & family round?