How to Raise Money from Family, Friends, and Fools (Without Ruining Your Life)

This Friday->Founder’s Pocket Guide: Friends and Family Funding by Stephen R. Poland [3 min reading]

On Startup Salad I break down a business book’s key takeaways in a simple, digestible format, just like a good salad!

Hey, it’s Fede!

Thinking about raising some FFF (Family, Friends, and Fools) money?

Hold on, maybe don't make that call just yet.

Give this newsletter a quick read, I’m pretty sure you’ll find a few useful insights in here.

Alright, first things first:

1. Don’t take their money if they can’t afford to lose it.

2. Don’t compare yourself to others. You don’t know their full story.

Now, let’s see how to actually fund a fresh startup with FFF.

Today's book: Founder’s Pocket Guide: Friends and Family Funding by Stephen R. Poland

Pssst: Every time you see a 🥗, it means the takeaway is very hot!

Startups need capital to grow.
– Y: “Thanks, Fede.”
– “You’re welcome.”

Here are the main types of funding, in order of project maturity:

1. Personal funds (aka bootstrapping)

2. Family, Friends, and Fools (FFF) 🥗

3. Grants and public funds (from governments, foundations, or private institutions, usually for deep-tech projects)

4. Angel investors

And then... you enter the fantastic world of VCs, full of big checks, rainbows, and unicorns.
Today, let’s focus on the second one: Family, Friends, and Fools.

Pssst: These are the most common funding options, but there are others out there too!

Don’t ask for money randomly.
First, define the perfect FFF investor for you.

• Money to lose – Can they afford the risk without changing their lifestyle? 🥗

• Background – Do they understand your industry? Could they offer good advice?

• Relationship – Close or distant? This affects how you handle setbacks. 🥗

• Number of investors – Be careful. Personal relationships can get messy.

• Terms – Loan, equity, or a mix? How much equity are you willing to give up?

This last option is a bit tricky, so I’ll cover it in a dedicated section right below.

Here we are again.

Thanks for not switching channels.

Let me show you the four main ways to score cash from Family, Friends and Fools:

1. Loans
The easiest: you get money, keep all your shares, everyone’s happy, until you owe them. Maybe it could be a good idea to negotiate “interest-only” agreement or “pay me back when you can” terms to buy time.

2. Profit-sharing
You repay with a slice of your future profits. Sounds fair, but “profit” can be a complicated concept in a startup. Define it clearly and run the numbers in a solid financial plan before promising your FFF the moon. 🥗

3. Equity
Classic startup move: swap shares for cash. Your FFF gets a stake in the dream, but every share you give up dilutes your control. Also, good luck agreeing on a valuation. Soo, be very careful with this option.

4. Mixed bag
Combine loans, profit-sharing and equity to balance Pros and Cons. Smart move, but it can get messy to manage all the paperwork, so keep your agreements crystal-clear and as easy as possible. 🥗

Communicate constantly.

The fastest way to blow up your FFF relationships is to leave them in the dark or make them feel cheated. You don’t want that, right? Keep everyone in the loop, or prepare for awkward family dinners. 🥗

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That’s it for today, BIG HUG.

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The guidelines you need to build your startup:

• TAM, SAM, SOM: How to Actually Calculate Them.

• Go-to-Market Fit: How to Start!

• The Startup Growth Manual: The Complete List of Guidelines

• Cap Table For Founders: Step-by-Step Guide

• Public Speaking: How to Do It!

• Many more

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See you next Friday,
Federico Lorenzon