Best Practices for including funds from "friends & family"

professional profile

November 12, 2021

by a professional from Cornell University in Boulder, CO, USA

Does anyone have any best practices to share from raising capital from both investors and "friends&family"? Any common pitfalls to avoid?


Always hear to avoid mixing the too but it seems like an easy way to plug any capital raise gaps. Curious about people's perspectives and experience with this.

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commentor profile
Reply by a searcher
from Tufts University in Jersey City, NJ, USA
If they're accredited investors it's not a big deal, but it is worth talking to your counsel if they're not because there are reporting implications for taking money from non-accredited investors and your lawyer can advise you best on the pros/cons of going that route.

Another thing to consider: Any investor has an equal ability to cause headaches irrespective of the size of their check. Generally you're best off keeping a streamlined cap table with fewer, more sophisticated investors. Family/friends are more likely to be unsophisticated and therefore potentially panicky, have unrealistic expectations, underestimate risk, and invest money that they can't afford to lose. Family/friends also might also think that their personal relationship to you entitles them to unscheduled, more frequent updates than your other investors.
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Reply by a professional
from University of Denver in Denver, CO, USA
Whenever you offer securities, the offering must be registered or exempt from registration under the securities laws. Registration is an expensive process, so that is typically not an option. Exemptions are what you are looking for. Remember there is no "friends and family" exemption under the securities laws. You'll want to talk to a securities lawyer to make sure your offering is exempt from registration. From a relationship standpoint, you want to have the hard conversation about the timing for return, voting rights, and the risk of loss to make sure the potential investor is comfortable. Otherwise, Thanksgiving dinners can get awkward.
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