Ask HN: Best way to raise Family and Friends Round

https://news.ycombinator.com/item?id=4275789

by allbombs • 14 years ago

8 12 14 years ago

news.ycombinator.com

I never imagined myself asking family and friends for money. I have always had a bit of a chip on my shoulder and wanted to do everything on my own, and without a free hand out along the way. I'm 30 years old and i've gone to battle within many different settings at a handful of startups. I believe I'm mentally prepared to 'go for gusto' and try to raise 50k from family and friends.

I used to advise my friends within the startup community to avoid raising money from family at all costs. And now I sit here pondering what is the best way? How can I be respectful and ensure everyone is comfortable to say yes or no? How should everything be structured? Should I treat this like raising any round, or what should I do differently? How should I structure equity? What if my girlfriends family wants to get involved (this could add a lot of pressure and strain on our relationship)? Should I try to spread it out over as many family friends as possible. or the opposite?

Edit:

- My family and friends are middle class. I wouldn't classify them as rich or poor, but wealthy enough to travel on a few vacations per year.

- Family and friends do not come from a startup background, or tech background at that. This is all pretty new to them, but they have seen the social network..

- i'm dumping 15k in, the last of my savings.. i'm all in

hkyeti• 14 years ago

I've raised money from friends before. I'd be honest with them about the risks involved (while still conveying your vision and the opportunity) and let them know that you'll be putting everything you have into the effort, no matter the result. Good luck, admire your dedication.

allbombs2• 14 years ago

How did you handle that? And what was the outcome?

rgbrgb• 14 years ago

Why the sudden change of heart? To me, it sounds like a terrible idea if the amount of money you'd take would be a significant loss for them.

allbombs2• 14 years ago

Of course, would never take money that no one couldn't afford to lose

timmm• 14 years ago

Don't do the investment model. You're asking for trouble, especially with family and friends involved.

1. Get part-time or full-time job

2. Moonlight

3. Become profitable (albeit low income)

4. Work up to go full-time

5. Done

Be honest with yourself if you can't make a few thousand dollars online to self fund then your certainly not going be able to make real money with a business online.

Your also asking all the wrong questions, the only question you should be asking is: How can I make a dollar?

polyfractal• 14 years ago

I can't upvote this enough. Furthermore, this sentence:

>i'm dumping 15k in, the last of my savings.. i'm all in

Was a big, red flag for me. Would you dump your life savings into lottery tickets? Don't delude yourself...a startup is just about as hopeless as winning the lottery. You said you've worked at startups. I imagine you've seen, first hand, what the chances of success are.

Seriously, don't blow your emergency fund on the lottery. I know this is a very anti-HN comment, but realistically (statistically!) most startups end in financial failure.

Set aside 6 months of expenses, use the rest of the money to bootstrap your idea as much as you can. Outsource as much as you can afford and get as much traction as feasibly possible. Aim to be profitable from day one.

If you aren't profitable by time you start depleting your emergency fund, THEN consider funding if you think you have a viable product. Or just get a job to help pay for it.

actionbrandon• 14 years ago

also, scared money loses. if you're cool with blowing out then you're fine. are you going to be fine if your not just losing your money but also blowing through aunt sallies money as well?

staunch2• 14 years ago

The technicalities aren't nearly as important as making sure you have a very frank conversation with them about the risks. Something scary like:

"There's a 40% chance you will never see this money again, a 30% chance you will only get your money back, and a 30% chance you'll get something extra back. Even if things go well it will still likely take 5 years before you see your money again. During that time I probably won't be able to give you very informative updates, because even I won't be able to predict how things will play out."

You have to genuinely try to scare them off. Say it to them verbally and then write it in an email, so that in the worst case they can be reminded of exactly what you told them. You can prove to them that you didn't mislead them. Consider this resentment insurance for people with bad memories/character.

Even then only take money from people who can easily afford to lose it. Taking $20k from someone who has $300k in savings isn't going to hurt them. Taking $20k from someone who has $30k savings is a no-no.

Really, unless you have a friend/family member that's rich you probably shouldn't be doing this. Maybe a few thousand dollars, but not tens of thousands. Risking your credit is better than risking your relationships. Tread carefully.

tptacek• 14 years ago

I wouldn't tell a friend or family member that there's a 70% chance of getting a startup investment returned whole.

staunch2• 14 years ago

Adds up to 60%, but yeah, feel free to adjust those as you wish. Some businesses have a lot less risk than that (ones that have been profitable for years) and others are probably higher risk.

joshu• 14 years ago

Probably best to say that there is a nearly 100% chance the money will never come back.

jamesjguthrie• 14 years ago

I couldn't do it, I hate owing friends and family money; and I think they would be more annoying/demanding than a normal investor.

Ask HN: Best way to raise Family and Friends Round

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