The Risks in Family and Friends Funding

Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing.

Raising investment from family and friends is often a key step in a startup's fundraise.

In the early days, there's no team, product, or customer traction.

The founder has only an idea but lots of enthusiasm.

It's a sign of validation that a founder's family and friends will invest money.

They may not invest a great deal, but investing sends the signal of support.

Angel investors and others will look for this validation.

For those raising from family and friends, make clear the risk they take.

They could lose all their money.

If the business succeeds, they will suffer a great deal of dilution as there will most likely be many rounds of funding to follow.

Family and friends often have no rights or preferences.

In most cases, there's no board, so there will be minimal oversight over the startup.

Founders will do well to make clear the risks the family and friends funding will take.

In fact, it's best to raise small amounts of funding from family and friends and indicate that no one will be paid back.

In many cases, family and friends are supporting you and will treat it as a donation rather than an investment.

Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.

Let's go startup something today.

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