Balancing Friends & Family Money with Seasoned Investor Capital

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by a searcher from Babson College - F.W. Olin Graduate School in United States

1yr ago

Balancing Friends & Family Money with Seasoned Investor Capital

Following on an earlier post about friends and family funding, I’m seeking advice on the ideal balance between friends & family contributions and with that of seasoned search investors in a traditional search fund. I have close connections who are eager to contribute, particularly during the search phase, but I’m concerned they may not be able to commit the same level of capital that seasoned investors or funds might provide during the acquisition phase.

I’ve received conflicting advice on this and would appreciate insights on how to strike the right balance. What mix have others found effective, and how did it impact your search fund's success?

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Reply by a professional 1yr ago
from Lindenwood University in St. Louis, MO, USA

A couple questions in weighing this decision....

1. Desired Outcome: What is the total amount of capital you are looking to raise?-- if <$5M, then it might make sense to target a friends & family round. However, the more investors you have in the mix, the more complex potentially your investor relations / comms will be.

2. Investor Quality / Risk Prevention: Are the friends and family accredited investors / understand the risk? Hopefully, if everyone is aligned and understands pros / cons-- then hopefully you won't burn any bridges if things don't go as you hope.

Reply by a searcher 1yr ago
from IESE Business School in Valencia, España

In my experience, having just raised my traditional search fund, I recommend that family and friends should comprise no more than 10-20% of your cap table if you are pursuing the traditional model.

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