Should You Raise Money From Friends And Family For Your Startup?

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Raising money from friends and family is complicated, but it might be your only fundraising option for a while. Before taking the leap of faith, make sure you understand the implications.

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The very first pre-seed investment round is often jokingly called in the startup community the FFF round – fools, friends, and family. Fools, because you’d invest in such an early-stage project only if you don’t understand the level of the involved risk. The expected return of such investments on average might be negative.

Moreover, the real upside is higher, because the parents don’t care only for their own return, but for the ability of their child to support themselves by doing something they love. For example, if the startup idea isn’t scalable and doesn’t become a unicorn, but rather transforms into a lifestyle business, an angel investor or a venture capital fund would write it off as a failed investment.

 

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Sure, but still make a contract.

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