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Tactics for getting money with a friends and family round?

I write this and know that so many of you may be asking the same question.

1. We have incredible opportunities over the next couple of months, the main event starting in 10 -15 days.
2 These opportunities require us some travel budget, upgraded designs, and other things necessary to win a client.
3. Potential clients do have some skin in the game and are paying for some things, but not all.

To roll with the big girls, you need cash and quickly; too quickly for pitch decks, VCs, and all that garb.

We are considering do a friends and family round. I've never done one of these before - love to hear how it goes if there is anything we need to be prepared for or a special way to approach people?
My family isn't rich, so I guess it is more friends than family.

Can you all share their dialog and experiences? Thank you!

I am not allowed to say who the clients are due to NDAs and wonder if this is a problem or do I just get people I ask for money from to sign NDA?

10 Replies

Kelly McIvor
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Kelly McIvor Advisor
Product Marketer | Mobile Strategist | Opportunity Developer
Alison,
Not sure what's up with all the out-of-office notifications but...

F&F is about your relationship with the potential investor. You are selling them first on yourself and your ability to make something happen and second on your idea, though you will lead with your idea.

Also, F&F isn't a 'round'. Unlike other rounds there isn't a stated investment goal and usually not a negotiated company valuation. It is VERY RISKY for the investor and you need to be very clear about that. They may never see their money again - it is NOT a loan.

Finally, you'd be surprised how many people have money. Don't assume to know which of your family might have $20K to invest just because they are not 'rich'. Offer the investment opportunity but give them the option of referring you to a friend.

Good luck!
K
Alexey Dmitriyev
1
0
Alexey Dmitriyev Entrepreneur
Director of Technology at Delivery Agent
When you "Offer the investment opportunity but give them the option of referring you to a friend.", should you say, "oh, by the way, it would be nice if a friend were an accredited investor"?
Jessica Alter
1
0
Jessica Alter Entrepreneur • Advisor
Entrepreneur & Advisor
Already a good discussion on this here:http://members.founderdating.com/discuss/640/Going-to-Friends-and-Family-for-Funds
Daniel Eberhard
0
0
Daniel Eberhard Entrepreneur • Advisor
CEO, Koho
I've raised and closed Friends and Family rounds. We were able to bring things back to them at 5x and even then I don't recommend it.

If you have client money, you have some form of proof of concept/traction. Investors can move quickly for the right opportunity. Throw a few lines in the water and see if investors bite.

If you do take a F&F round, take only what you'll need + 15%. Be very clear that they know this could go 0.

Good luck,
Alison Lewis
0
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Alison Lewis Entrepreneur • Advisor
CEO/Creative Director
Good notes. Seems the F&F can be a bit tricky/scary.

What about getting 5 - 10k from 3-6 angels? Maybe that's a good way instead.

Right now, we've got 2-3 sales meetings lined up (2nd and 3rd meetings) with them paying for the flights; is that enough for investors?


Jose Onate
1
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Jose Onate Entrepreneur
Web Startup Expert, Drupal Consulting, CEO at AWM

Don't want to sound negative, but I want to second the idea that F&F is not a good approach. If you must due to real time constrains, still plan a real funding round for asap afterwards, and only take the minimum from F&F.

To your question, how to approach F&F:

They are coming to the meeting because they know you. But they also know you as a F&F, not a business exec. Keep that in mind, you may have to demonstrate your qualifications before talking shop.

Prepare a short presentation on the investment opportunity to match the investment skills of the audience. Avoid equity deals (long-term, cumbersome, higher potential to hurt relationships if things go south.) Offer mild/minimal return, 1yr terms or the like under the expectation that there will be another funding round shortly after. F&F do not need an awesome deal, they are mostly listening to you because they like you and want to help.

Do not accept the money as a personal loan, because if you fail you won't be able to pay back, and it will add tremendous baggage to the relationship. Accept it only as business investment and clearly articulate the risk of failure and losses.

Sidebar - Word of caution:

Don't get caught in the trap of "we are missing a great opportunity if we don't move fast."

Any venture worth doing is worth doing right. There always will be a thousand good opportunities for a solid business idea - now and a year from now. If you haven't been able to prep for funding, articulate your strong position to potential investors, get organized and raise cash properly, then statistical chances are high that you are simply not ready for prime time and there may be serious pitfalls in your current business plan. It is a very hard thought, but embracing it early can be the difference between success or pain 6 months from now when you go back to running out of cash (and in a good deal of debt.) Consider a review of your circumstances with a clear mind.

Alison Lewis
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Alison Lewis Entrepreneur • Advisor
CEO/Creative Director
I hear you. F&F doesn't sound very good. Time is short, so I'm moving as best I can.

Standing still is bad for business. People come to me and my company because we know how to do something other people don't - as time passes (6mo - 1year) that will not be the case. Look at my first work in 2003 - hello! Now everyone is doing connected jewelry.

The right Angel is out there, I just know it. I've just not found her yet. This little lady has more grit than all her peers and if I am forced to walk from these deals, I will.

But, I wont' stay down for long and eventually, I won't wait for people to catch up. As one investor said to me "by the time you can get investment, you won't need it anymore." Ugh. This is the crap statements I get.

SV, your not going to kill this little lady's spirit or keep putting baby in a corner! The world will have connected, instantly customizable, expressive and adaptive clothing if it kills me.

Ok. I ranted. Moving on...

All I can ask for now is the ability to see the people who want to help me (they are out there) and learn how to talk to them to get them inspired to part with their money. Not my strongest skill, but I have few other choices.

I saw a guy post something about 3 emails he sent to raise funds. I'd love to find that example again. Would be really helpful.
Jose Onate
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0
Jose Onate Entrepreneur
Web Startup Expert, Drupal Consulting, CEO at AWM

Alison,

I understand your frustration. The quest for funding/startup support can be overwhelming and disheartening at all levels.

I think the most useful thing I can follow up with is to recommend that you work on making more connections and expanding your network within the field that your business is targeting. I'd say that the best place to find like minds that will be passionate about your idea, is in the field where people work on similar ideas.

You are more likely to raise curiosity and positive awareness amongst people who already understand what you are doing. Chances are the more you connect with others in your industry, the more likely it will be that someone with the correct "angel capacity" will learn about your project and become interested.

The second thing I can add is that funding is not the only way forward, that's why I used the expression "startup support." I don't know much about your project so I'm not entirely sure what are the things you need most, but lets say that you need help with manufacturing, then you could partner up with a manufacturer that could bring your vision to reality - then they could carry the expense of production in exchange for equity (which is essentially the same as getting $X from a VC to cover production costs in exchange for the same equity.)

This has its own problems and pitfalls, but building mutually beneficial partnerships can be a cost-free process capable of yielding similar and better results than actually getting funded.

Finally, I wouldn't mind taking a look at your project. Feel free to send me your plans/sales pitch for review. I'll be happy to give you additional notes via email.

Nigel Ravenhill
0
0
Nigel Ravenhill Entrepreneur
Marketing for Companies that Need Attention & Sales
A low interest credit card followed by asking for a down payment from clients if you're successful closing those sales meetings. When I say ask, I mean you simply include it in your terms and conditions of sale. Don't say "Can you give us some money up front." Instead, "Payment terms are X days with a 30% deposit or down payment at the time of order."

I wouldn't touch F&F unless you're OK with losing some of them if your venture goes south.
Alison Lewis
0
0
Alison Lewis Entrepreneur • Advisor
CEO/Creative Director
I want to give people an update.

Jose, I'll send some info.

We ended up doing a video and conference call instead of flying us out. Saved a lot of money and time for both parties.

This gave me a little time to prepare and I've had time to update our pitch. A credit card may the way and I've scheduled a couple meetings with potential angel investors. Selling and doing investing at the same time is a bit much for me, but I'm confident the right person(s) are out there.

We do have a retainer fee once we get to the right stages. Glad you mentioned it (Nigel).
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