Raising Funds Through Loved Ones for your Start-Up

There are many avenues to take when trying to raise capital to launch your start-up, develop a product, or even grow an existing business. We’ll focus on the pre-seed round. This round is typically designated for any funding done at the very beginning stage of your start-up. At this stage, you haven’t received any capital from outside investors. You need the money to get started, your savings aren’t enough, and you’re connected to loved ones with financial means.

Raising money through family and friends

Never ask for money from family members or friends who cannot afford to lose the money they lend you. Often times, start-up founders are told to get capital from loved ones, but the truth is, not everyone is born into or connected to a family with financial means. It’s not always realistic or possible to collect money from parents, siblings, extended family, or friends. BUT, if you are surrounded by loved ones who are in a position to assist you financially, start here first. This method of fundraising is called the Family and Friends round. It’s highly encouraged for founders at the very early stage of their start-up.

An early investor in your business or start-up idea is investing in you. They’re investing in your ability to complete what it is you set out to do. They’re investing in your drive, determination, and persistence to make your idea a success. They’re also investing with the understanding that the first sum of money they lend you will most likely never be returned to them, but they’re okay with that because they believe that future rounds will generate more return on their investment (ROI).

Best Practices

  • Always come prepared with a written, formal agreement when accepting the money
  • When applicable, provide a detailed repayment plan to your donors
  • Determine the investment type: gift, loan, equity
  • Have your product or idea validated before approaching your loved ones for donations
  • Do not ask for more money than a loved one can reasonably afford
  • Focus on loved ones with financial means and knowledge in your business industry
    This is to strategically position you around connections that can be of help long-term
  • Be honest and upfront about your business plan, risks, and expectations
  • The standard ask for a family round is around $25,000 to $150,000 in total
    Expect small and large donations from various family members to reach your total goal

Get Rid of Your Fear of Asking: it’s not easy approaching those you love and care about to ask for money. We want you to realize that if you genuinely believe in your idea so wholeheartedly that you’ll do everything in your power to make it a success, then you’re doing your loved ones a favor. Realize that your success is their success if they’re the first investors. Should your company turn out to be a fast-growing business with a great buyout or ends up publicly traded, your loved ones will thank you for gaining in your profit.

Get Organized and Just Do It: don’t wait for the perfect moment or opportunity to ask your loved ones for money. As soon as you’re prepared to do the asking, just do it. Make a list of all family and friends who you know can afford to invest in your business. Gather their contact information and organize your calendar to ask those who can donate in large and small amounts. Mix in a large ask with a small ask to balance out the fear of failing. Reach out to them confidently, with a mindset that’s determined to fundraise your total goal. You are now a salesperson and you’re selling your future. Your faith rests on how well you convince them that not only are you creating a better future for yourself, but you’re creating one for them too.