Ask A VC #6

Question:

I am doing a startup and need capital. I understand I need to raise from angels or friends and family and I am curious your thoughts on the friends and family part?

Answer:

Good one. My advice is to really think the friends and family part through. I normally see them as a last resort since if you take money from them and your startup goes south, which is quite probable, then these people may not want to be your friend anymore and at the next Christmas dinner you may find some disgrunlted family members as well.

I think it is best to first find incubator, grant money or a professional angel network since these groups might force you to come up with a better plan before funding since they have seen many startups. This would be better than potential F&F money where they probably can’t help you with your business or idea all that much. Then as you raise from more porfessional sources and your idea continues to live, coming to the F&F connections might be less risky.

Maybe you have a rich friend or family member and they are interested in funding startups and they want to help you, but make sure you do it all properly like any other investor. Don’t let is get personal. Use a proper investment vehicle like a note and be sure to have similar terms for all parties. Also stay away from loans or any thing that promises pay back as other investors come in. Nothing scares of institutional investors more than seeing a deal where early investors get to cash out with new money coming in.

 

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