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Friends and Family Funding and Why I'm Dreading Thanksgiving

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Re: Friends and Family Funding and Why I'm Dreading Thanksgiving

#61

Post by PhasmaFelis »

phamilton wrote: post #47
PhasmaFelis wrote: post #27

I'm still trying to wrap my head around the idea that there's a world out there where you can just casually hit up Grammaw and Uncle Barry for twenty grand apiece. It doesn't really favor the notion that the startup world is an egalitarian meritocracy.

20 grand isn't that much. Go hang out on mrmoneymustache.com or earlyretirementextreme.com and you'll see plenty of people with twenty grand set aside for "risky investments". It's especially true right now, as depression era children have all retired after a lifetime of deeply-ingrained frugal living.

See, this is kind of what I'm talking about. There's a world out there in which people can say "20 grand isn't that much" with a straight face. I guess it's nice that that world exists, but it really doesn't represent the experiences of most Americans.

Re: Friends and Family Funding and Why I'm Dreading Thanksgiving

#62

Post by 001sky »

rayiner wrote: post #53
001sky wrote: post #17

Earlier quoted context omitted.

The purpose of borrowing from your parents is different, though. The transfer of wealth from parent to sybling via "paying for" college is (as you rightly point out) not really a loan, but a type of "grant". More specifically, its one that is both socially acceptable and tax beneficial[1]. The logic of Romney's positin on borrowing is that it is . That is to say, the parent has more information on the borrower than a…

> [1] Gifts over 10k are taxable. The annual exclusion is $14k per donor per recipient. So a married couple can give at least $84k per year to their three kids (total). But in practice, that's not the relevant limit. Amounts over $14k per donor per recipient per year count against the lifetime exemption, and are only taxed once that exemption is exceeded. Currently, that exemption is over $5 million. Its true that tu…

These are good points, and I stand corrected. The laws have changed on this substantially over the past 10 years or so. There is a brief summary of the changes here:

http://www.irs.gov/Businesses/Small-Businesses-%26-Self-Empl...

It turns out there is also, this:

Beginning January 1, 2011, estates of decedents survived by a spouse may elect to pass any of the decedent’s unused exemption to the surviving spouse

Re: Friends and Family Funding and Why I'm Dreading Thanksgiving

#63

Post by xrd »

I took money from friends and family. I would not do it again.

Most of my investors were well meaning. And, their expectations were often set by what they read in the media. I had one investor dream that he was a millionaire, and was initially very upset when we sold for a lower valuation than his investment valuation, and did not understand why he was not receiving all of the purchase funds rather than an amount based on his ownership share. There was a generally poor understanding of investment and this was hard to explain to a friend. Angels, supposedly, know that they will probably lose their entire investment, while F&F almost never think that, nor can they afford to.

Of course there are pros and cons of each type of investor.

The thing that would have me hold off from taking investment from friends & family would be that they often cannot to bring anything other than money to the table. If you read about Ron Conway, for example, you'll see he brings money and his whole being (connections, advocacy, etc.) when he invests. This is a big deal. F&F investors intend to do this, but they are as different in this way from "real" investors as growth hackers are from government workers. They don't know how to build businesses, and don't have much other than more opinions, generally.

And, if you have a family member that does not fit this bill, then by all means, take them as an investor.

Re: Friends and Family Funding and Why I'm Dreading Thanksgiving

#64

Post by SkyAtWork »

foobarqux wrote: post #41
PhasmaFelis wrote: post #27

I'm still trying to wrap my head around the idea that there's a world out there where you can just casually hit up Grammaw and Uncle Barry for twenty grand apiece. It doesn't really favor the notion that the startup world is an egalitarian meritocracy.

Bezos's parents invested 300k into Amazon or whatever it was called at first.

Though Jeff came out of a hedge fund (DE Shaw) and doesn't seem to have been struggling :)

Re: Friends and Family Funding and Why I'm Dreading Thanksgiving

#65

Post by vertis »

rajbala wrote: post #46

You don't have to raise money from friends and family to have Thanksgiving become "Thanksgiving plus a 20 minute board meeting." All that's required is that your family know you're in the throes of starting a company and suddenly you'll get lots of questions some perhaps hard to answer.

There are hard questions: Are you sure this is going to work?

And then there are hard questions: Am I going to get my money back?

Re: Friends and Family Funding and Why I'm Dreading Thanksgiving

#66

Post by foobarqux »

SkyAtWork wrote: post #64
foobarqux wrote: post #41

Earlier quoted context omitted.

Bezos's parents invested 300k into Amazon or whatever it was called at first.

Though Jeff came out of a hedge fund (DE Shaw) and doesn't seem to have been struggling :)

He wasn't struggling but he left before getting his bonus so I don't know how much of his own capital he had to invest.

Re: Friends and Family Funding and Why I'm Dreading Thanksgiving

#68

Post by phamilton »

PhasmaFelis wrote: post #61
phamilton wrote: post #47

Earlier quoted context omitted.

20 grand isn't that much. Go hang out on mrmoneymustache.com or earlyretirementextreme.com and you'll see plenty of people with twenty grand set aside for "risky investments". It's especially true right now, as depression era children have all retired after a lifetime of deeply-ingrained frugal living.

See, this is kind of what I'm talking about. There's a world out there in which people can say "20 grand isn't that much" with a straight face. I guess it's nice that that world exists, but it really doesn't represent the experiences of most Americans.

I should rephrase. 20 grand isn't much over the course of a few decades. It's a lot for a 20 something year old fresh out of school.

For someone in their 40s, having 20 grand available for such an investment isn't always the result of good fortune. It's a low enough sum that can be attributed merely to frugal living and smart financial decisions. It's easily the difference between packing a lunch instead of eating out every day throughout a career. It's the long term difference between driving used Hondas instead of new Hondas.

I understand there are plenty of people who don't have such choices, but I guarantee there are plenty of individuals here on HN that could squirrel away 20k a year if they really tried. Saving 20k over the next decade is well within the reach of most individuals.

Re: Friends and Family Funding and Why I'm Dreading Thanksgiving

#69

Post by natrius »

rayiner wrote: post #40
PhasmaFelis wrote: post #27

I'm still trying to wrap my head around the idea that there's a world out there where you can just casually hit up Grammaw and Uncle Barry for twenty grand apiece. It doesn't really favor the notion that the startup world is an egalitarian meritocracy.

"Egalitarian meritocracy" is relative. It used to be that going to Harvard was largely a measure of whether you had enough money to go to Harvard. In 1950, the acceptance rate at Harvard from elite preparatory schools was almost 90%. Today, it's an "egalitarian meritocracy." The acceptance rate is around 5-6%. A quarter of students come from families that make below $80k, and 60% of students receive some financial ai…

If merit correlates with the ability to make money and merit is heritable, you'd expect those with merit to come from families with money. Top schools and our industry are probably far from pure meritocracies, but that data doesn't prove (or even strongly suggest) it.

Re: Friends and Family Funding and Why I'm Dreading Thanksgiving

#70

Post by amirmc »

natrius wrote: post #69
rayiner wrote: post #40

Earlier quoted context omitted.

"Egalitarian meritocracy" is relative. It used to be that going to Harvard was largely a measure of whether you had enough money to go to Harvard. In 1950, the acceptance rate at Harvard from elite preparatory schools was almost 90%. Today, it's an "egalitarian meritocracy." The acceptance rate is around 5-6%. A quarter of students come from families that make below $80k, and 60% of students receive some financial ai…

If merit correlates with the ability to make money and merit is heritable, you'd expect those with merit to come from families with money. Top schools and our industry are probably far from pure meritocracies, but that data doesn't prove (or even strongly suggest) it.

> "If merit correlates with the ability to make money and merit is heritable..."

In the UK this was called being of 'good breeding'. It's no more true now than it was back then. Bear in mind that money is also heritable.

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