7 ms·

"Having previously raised $250,000 from friends & family" I cant imagine any of my friends or family being able to give me a quarter million.

ryanSrich 11y ago
Right? I see this a lot and it's often an investors first response when asking for small seed rounds: "Well have you considered raising money internally? Ask around your friends and family". If I had friends and family that could just toss me a $250k I don't think I'd be in this position.
- daenz 11y ago
  Reminds me of Mitt Romney's entrepreneurial advice: "Borrow money if you have to from your parents." Such a disconnect. Must be nice to have parents to be able to bankroll your businesses, Mitt.
  - jeremybell 11y ago
    Why would you immediately think it was my parents? Sigh.
    - sbov 11y ago
      I don't think it was a slight on you. Just the idea that some people (again, not you) think that it's easy to get access to this sort of cash (or even 1/10th, or even 1/100th of it) to "bootstrap" themselves to success (bootstrap in quotes because relying on cash from others isn't equally feasible and I'm not sure if it's really pulling yourself up from your bootstraps).
    - skj 11y ago
      Why would you immediately think the poster was referring to you? Seemed directed at Romney.
  - meric 11y ago
    My parents (who owned a house) offered to lend me five figures to buy a house, together with my savings I think that would have been enough to bankroll a small business. I earn more than they do these days. I think Mitt's advice is valid for middle class families who don't max out their credit to spend on cars and holidays.
- smackfu 11y ago
  But they have to ask, because if the answer is no, that's a huge red flag. "You are willing to lose my money, but not your friends or family?"
  - manish_gill 11y ago
    ...That's kinda stupid. Maybe no one was in a position to loan that much money. Or maybe nobody wanted to? Could be any number of things.
    - smackfu 11y ago
      The "No" is to the question, "did you ask your friends and family?"
  - RogerL 11y ago
    I would say an answer of "yes" is a huge red flag. A good CEO needs to understand risk/reward. VCs are investing in risky things, and thus distribute their cash amongst hundreds of start ups, fully aware that most will go to zero. It doesn't matter because 1 will go to $1 billion. OTOH, family usually can't afford to lose what they give. They make emotional decisions, not financially rational ones. If a CEO can't distinguish those entire distinguish those entirely different cases I doubt their financial acumen. You go to VC for moon shots, to the bank for proven business models, and to family and friends to build a family 'lifestyle' and asset heavy businesses (asset heavy so you can recoup some of the money if your business fails). No one rational should believe that their startup will succeed no matter what. We know, with certainty, that it almost certainly will fail. It's a flutter - a bet on a fabulous future (fabulous in terms of success, making a difference, huge wads of cash, whatever). If VCs expect that kind of naivety, well, you get what you pay for. How many other ways will that CEO be naive?
  - jnbiche 11y ago
    If this is true, then I'm even more wary of ever seeking VC money than I was before. No way in hell I'm asking my middle-class and lower-middle class family members to support risky venture X. That's the job of the wealthy venture capitalist, who can afford to lose X dollars on my venture (that's the whole rationale behind the "accredited investor" thing, as much as I disagree with the regulation). If they expect someone else to do their job, I wouldn't want anything to do with them, anyway. "You are willing to lose my money, but not your friends or family?" "Yes. Because if I asked my family to fund a business venture, it would be something bland, low-risk, and low-return. Exactly the kind of things you guys can't stand funding."
- pbreit 11y ago
  Raising $250k from your close network should be very easy for anyone hoping to be a founder. If you can't get 10 people to write a $25k check, you should reconsider founding a company.
  - karambahh 11y ago
    If, for your first round, you end up with 10 individual investors each forking 25k, you'll end up with board management issues. 1 with 100k, 2 with 50, 4 with 12.5 : yeah, why not. With that, you have one clear lead, with whom future investors and bank can relate to. My bank wouldn't have bankrolled us if we had 10 "small" investors from the start. [This said, I'm no expert on the subject, just anecdotal evidence...]
    - pbreit 11y ago
      None of those investors would get a board seat. Yes, your breakdown is both preferable and more likely. But my point stands.
      - karambahh 11y ago
        Your point stands, however, I didn't mean "board" management literally. I should have said "shareholders management". I'm not entirely familiar with US corporate law, but on roman based civil law, 10 investors with 25K of seed capital (ie non trivial amount of % votes) can get messy. (although we did create a board with the breakdown I suggested, because we were lucky to pick the "right" FoaF investors, attorneys and counsels)
        URSpider94 11y ago
        Under U.S. corporation law, shareholders have very little ability to affect corporate management, unless they own a large enough stake to impact board elections. In a start-up valued at $1MM post-money, these 10 angels are not going to own more than a couple percent each, while the founders will control 75 percent of the company. The founders will have more than enough voting control, assuming they vote together, to ignore the investors.
jeremybell 11y ago
Ya, we were lucky in that regard. I'm not really sure what we would have done otherwise...
clarky07 11y ago
I could raise $250. Maybe $2500. :-P
billyhoffman 11y ago
See the comment above. It's not "Friends and Family." It's "Friends and Family who qualify as accredited investors." This is not your extended family giving you a $500 or $1000 to pursue your dream.
- Kranar 11y ago
  This is a misconception. Friends and family are allowed to invest in your company without being accredited investors.
marincounty 11y ago
I would never ask my middle class friends and family for funding on such a speculative venture to begin with. I would ask--if I had rich friends and family, and it was a great idea. This was not, but I don't understand most fashion anyways.

ryanSrich 11y ago

Right? I see this a lot and it's often an investors first response when asking for small seed rounds: "Well have you considered raising money internally? Ask around your friends and family". If I had friends and family that could just toss me a $250k I don't think I'd be in this position.

daenz 11y ago
Reminds me of Mitt Romney's entrepreneurial advice: "Borrow money if you have to from your parents." Such a disconnect. Must be nice to have parents to be able to bankroll your businesses, Mitt.
- jeremybell 11y ago
  Why would you immediately think it was my parents? Sigh.
  - sbov 11y ago
    I don't think it was a slight on you. Just the idea that some people (again, not you) think that it's easy to get access to this sort of cash (or even 1/10th, or even 1/100th of it) to "bootstrap" themselves to success (bootstrap in quotes because relying on cash from others isn't equally feasible and I'm not sure if it's really pulling yourself up from your bootstraps).
  - skj 11y ago
    Why would you immediately think the poster was referring to you? Seemed directed at Romney.
- meric 11y ago
  My parents (who owned a house) offered to lend me five figures to buy a house, together with my savings I think that would have been enough to bankroll a small business. I earn more than they do these days. I think Mitt's advice is valid for middle class families who don't max out their credit to spend on cars and holidays.
smackfu 11y ago
But they have to ask, because if the answer is no, that's a huge red flag. "You are willing to lose my money, but not your friends or family?"
- manish_gill 11y ago
  ...That's kinda stupid. Maybe no one was in a position to loan that much money. Or maybe nobody wanted to? Could be any number of things.
  - smackfu 11y ago
    The "No" is to the question, "did you ask your friends and family?"
- RogerL 11y ago
  I would say an answer of "yes" is a huge red flag. A good CEO needs to understand risk/reward. VCs are investing in risky things, and thus distribute their cash amongst hundreds of start ups, fully aware that most will go to zero. It doesn't matter because 1 will go to $1 billion. OTOH, family usually can't afford to lose what they give. They make emotional decisions, not financially rational ones. If a CEO can't distinguish those entire distinguish those entirely different cases I doubt their financial acumen. You go to VC for moon shots, to the bank for proven business models, and to family and friends to build a family 'lifestyle' and asset heavy businesses (asset heavy so you can recoup some of the money if your business fails). No one rational should believe that their startup will succeed no matter what. We know, with certainty, that it almost certainly will fail. It's a flutter - a bet on a fabulous future (fabulous in terms of success, making a difference, huge wads of cash, whatever). If VCs expect that kind of naivety, well, you get what you pay for. How many other ways will that CEO be naive?
- jnbiche 11y ago
  If this is true, then I'm even more wary of ever seeking VC money than I was before. No way in hell I'm asking my middle-class and lower-middle class family members to support risky venture X. That's the job of the wealthy venture capitalist, who can afford to lose X dollars on my venture (that's the whole rationale behind the "accredited investor" thing, as much as I disagree with the regulation). If they expect someone else to do their job, I wouldn't want anything to do with them, anyway. "You are willing to lose my money, but not your friends or family?" "Yes. Because if I asked my family to fund a business venture, it would be something bland, low-risk, and low-return. Exactly the kind of things you guys can't stand funding."
pbreit 11y ago
Raising $250k from your close network should be very easy for anyone hoping to be a founder. If you can't get 10 people to write a $25k check, you should reconsider founding a company.
- karambahh 11y ago
  If, for your first round, you end up with 10 individual investors each forking 25k, you'll end up with board management issues. 1 with 100k, 2 with 50, 4 with 12.5 : yeah, why not. With that, you have one clear lead, with whom future investors and bank can relate to. My bank wouldn't have bankrolled us if we had 10 "small" investors from the start. [This said, I'm no expert on the subject, just anecdotal evidence...]
  - pbreit 11y ago
    None of those investors would get a board seat. Yes, your breakdown is both preferable and more likely. But my point stands.
    - karambahh 11y ago
      Your point stands, however, I didn't mean "board" management literally. I should have said "shareholders management". I'm not entirely familiar with US corporate law, but on roman based civil law, 10 investors with 25K of seed capital (ie non trivial amount of % votes) can get messy. (although we did create a board with the breakdown I suggested, because we were lucky to pick the "right" FoaF investors, attorneys and counsels)
      - URSpider94 11y ago
        Under U.S. corporation law, shareholders have very little ability to affect corporate management, unless they own a large enough stake to impact board elections. In a start-up valued at $1MM post-money, these 10 angels are not going to own more than a couple percent each, while the founders will control 75 percent of the company. The founders will have more than enough voting control, assuming they vote together, to ignore the investors.

jeremybell 11y ago

Ya, we were lucky in that regard. I'm not really sure what we would have done otherwise...

clarky07 11y ago

I could raise $250. Maybe $2500. :-P

billyhoffman 11y ago

See the comment above. It's not "Friends and Family." It's "Friends and Family who qualify as accredited investors." This is not your extended family giving you a $500 or $1000 to pursue your dream.

Kranar 11y ago
This is a misconception. Friends and family are allowed to invest in your company without being accredited investors.

marincounty 11y ago

I would never ask my middle class friends and family for funding on such a speculative venture to begin with. I would ask--if I had rich friends and family, and it was a great idea. This was not, but I don't understand most fashion anyways.