Friends and Family Funding and Why I'm Dreading Thanksgiving • Hacker News Board

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

#91

Post by ef4 » Wed, Nov 27, 2013, 5:13 PM UTC

fiatmoney wrote: post #5

rayiner wrote: post #2

Relevant: http://thinkprogress.org/election/2012/04/27/473096/romney-b... . Although it is a weird dichotomy if you think about it. People let parents pay for their college to the tune of $100k+ and don't feel any obligation to justify or defend the investment.

"College" is in this case a proxy for "entrance to the socially-defined middle class". Parents in general (or at least the middle-class ones that would have money to lend/give for college) want their children to be at least as high in the social hierarchy as they are. Financing someone's business is much more of a mercenary decision; "do you run your own business" isn't really a social class marker in the way "did yo…

Maybe there are some families where a parent funding their child's business is in it "strictly for the money", but I've never seen one.

Why would you believe that parents who would selflessly spend $100k+ on college without expecting any personal monetary ROI wouldn't offer money on the same terms for their kid to start a business?

In either case you're buying experiences and trying to create opportunities for your kid. Even from a purely educational perspective, launching a business can be far more educational than lots of college programs.

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

#92

Post by ef4 » Wed, Nov 27, 2013, 5:34 PM UTC

I'm going to disagree and point out that all the horror stories always include people also breaking the regular old cardinal rules of investing. Whether or not they're friends & families has very little to do with it.

Don't raise a bunch of money from a crazy person with unrealistic expectations. Don't fund a business you don't understand. Don't invest money you can't afford to lose. Don't do business with people whose character you can't count on in good times and bad.

Now, obviously you need to not let your emotions blind your judgement so you can actually follow these rules, but that's always true, whether or not its family. And there's a very good reason to consider family deals: you have deep insight into the psyches of the people involved. (Or if you don't, you're probably not cut out for this kind of investing in the first place.)

I have a lot of friends and family I would never do business with, because they don't fit the criteria. But I also have people I would fund in a heartbeat, and I've done it happily.

If you're the investor, it comes down to accurately judging yourself. Can you really put relationships ahead of money?

If you're the startup, you need to judge the investor by that standard. Are they truly mature enough (and wealthy enough) to honestly not give a fuck about that money if they never see it again?

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

#93

Post by wdewind » Thu, Nov 28, 2013, 4:17 AM UTC

7Figures2Commas wrote: post #11

wdewind wrote: post #9

Earlier quoted context omitted.

I don't think he means exit in the sense of IPO or sale to PE. I think he means exit for his initial f&f investors. It's not entirely unreasonable to expect a larger seed round or even a series A after 2 years.

A professional investor (or group of investors) providing a seed or Series A after a couple of years is realistically going to have little interest in cashing out existing friends and family investors at a gain. At that stage, you're investing to grow a nascent business, not to buy the founder's mom and dad a deluxe new kitchen.

Really? Who is going to raise a down round for your seed/series A? And if you're raising an up round, why does it matter if the shares come from you or f&f? Honest questions.

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

#94

Post by ansontl » Thu, Nov 28, 2013, 10:26 PM UTC

Friends and family funding is indeed very common in startups and small businesses. Over 40% of businesses started from borrowing money from friends and family. The rules are very simple: 1) make sure they can afford to lose the money; 2) have a formal agreement and make it professional, set the right expectation, and communicate the risks upfront; 3) keep them informed on your business status, give them regular updates regardless whether it's a good or bad news. Even though this sounds easy, the actual fundraising process can be very tedious. You can get a lawyer to help you but that will cost you a lot of money. The best way is get use the tools online, like http://kickstarter.com, or this one http://trustleaf.com which is specialized in friends and family funding.