💰 How to Raise a Friends and Family Round

Toby Egbuna
March 7, 2024

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If you listen to popular entrepreneurship podcasts like How I Built This or Acquired, then you’ve heard the story:

It sounds nice, but how does one go about raising money from friends and family?

When we kicked off our fundraise in Summer 2022, I knew that I wanted some of the money to come from friends and family. It was a priority for me to make investing open to people that I care about. My goal was to raise $25k. To my surprise, we secured a little over $110k from our friends and family (‼️). In today’s newsletter, I’ll share how we did it so you can do it, too.

What is a friends and family round?

A friends and family round is a stage of startup fundraising that’s often the first outside capital into a company. It involves hitting up your, you guessed it, friends and family to ask them for money to build your company.

These rounds are done early, sometimes before there’s a product or customers to show. They work the same as any other fundraising round: people learn about your business, do their own due diligence, and then write a check to purchase equity in the company.

Why you should open your fundraising to friends and family

While I’m not suggesting that every founder goes to great lengths to get money from their networks, I am advocating for every founder to give their friends and family the option to invest.

Think of it this way: opening the round to your circle is allowing them to create wealth. If you believe that your company will provide you with a meaningful financial outcome, then you should want to share the wealth with your community. Opening up your round is the way to do that.

With that being said, there is a greater pressure that comes with having their money in your bank account, and if you don’t want that pressure, then don’t raise it from them.

The 5-step process to raising a friends and family round

Like everything else in fundraising, you want to treat this as a process. Here are the 5 steps:

1. Invite people to invest

2. Open a Roll-Up Vehicle (RUV)

3. Schedule a group pitch

4. Follow up & close the deal

5. Say thank you

Invite people to invest

These are people you know, so no need to make it super formal.

Start by making a list of people that you’d like to invite to invest. Don’t be shy! If someone comes to mind and you have doubts about their willingness, put them down anyway.

Next, call or text the person and ask if they’re interested in investing. Make it clear that there’s no pressure at all to invest.

Here’s a template you can use:

Hey <name>!

Hope all is well. Reaching out because we’re kicking off our first round of funding for <company>, and we’re allocating some of the round to friends and family.

No pressure at all, but if you’re interested, let me know and I’ll send you more details.

Some people will respond right away and some will take their time. Either way, don’t overcomplicate this. Send these messages out in bulk and let the responses trickle in.

Open a Roll-Up Vehicle (RUV)

A roll-up vehicle, or RUV, is a legal setup that lets multiple people invest in your company under the same line in your cap table.

You don’t have to use one, but RUVs will make your friends/family round muuuch easier. All people have to do is click a link and enter their credit card details; it’s like online shopping.

Work with your legal counsel to get it set up. I suggest using AngelList; it’ll cost you $3-8k depending on the plan you select, but it’s worth it.

Schedule a group pitch

Your group pitch is where you’ll pitch your company to a large number of your friends and family at the same time. This way you can present to multiple people at once rather than having to do 1 on 1 calls with everyone.

Schedule a video meeting and send people a link to add it to their calendars - AddEvent.com works well for this.

Treat the call like any other pitch; the only difference is that you need to be very clear that this is an investment. Your friends and family aren’t professional investors, so they need to understand that if things don’t go well, they could lose all of their money. Encourage people not to invest in anything that they wouldn’t be okay losing.

Go through your deck and be prepared to answer questions. Here are a few questions I got during our group pitch:

• Is anything you have trademarked or patent pending?

• What does your roadmap look like?

• Can you explain the terms? What’s a discount rate?

Don’t underestimate your network! They’re going to come with some real questions. This is money you’re asking for, after all.

Follow up & close the deal

Once you’ve done the pitch you’ll have to make yourself available to any questions. Decide how much time you’ll dedicate to this as it could get pretty time-consuming, but you do want to make sure that your community feels comfortable investing. A pro tip is to put as much information on the RUV page as possible so people can refer to those details for their questions.

Slowly, the checks will start to come in. From the first to last check was about two months, but at the end of it, we’d more than quadrupled our original goal and we had over $110k in the RUV.

Send a thank you

Don’t forget to express your gratitude to people for investing. Do not take this lightly. Your friends and family believe in you enough to give you money. At the very least, send a mail-merge email to each investor. At the very best, call people individually to thank them for contributing.

Remember, people are investing in YOU

Understandably, several of the underrepresented founders I’ve spoken to haven’t bothered with raising a friends and family because they don’t think that people in their networks have the money to invest. You have to let your community make that decision for themselves. You owe them the opportunity to invest. If they want to put money in, then they will.

Your friends and family want to see you win. More than anything, they’re investing in YOU because they believe in you. Now go prove them right!

💰 Funding opportunities closing this week

Trying something new! I’m going to start sharing funding opportunities for underrepresented founders in every newsletter. Check them out!

1. Sequoia Capital's Arc 2024 Spring Cohort

   Description - You can come to us with an idea and no lines of code or just an MVP site. Arc alumni come from a variety of backgrounds: some are first or second-time founders, while others have helped scale top tech companies.

   Apply here: https://www.sequoiacap.com/arc

2. Gusto Impact Awards (Atlanta, Orlando, and Austin companies only)

   Description - We’re kicking off the Gusto Impact Awards: to celebrate small businesses powering cities like yours. Share your small business story for a chance at a $50,000 advertising package, $10,000 cash, and one year of free Gusto payroll services (even if you’re not already on Gusto!).

   Apply here: https://gusto.com/impact-award-contest

Is there anything about funding that you’re curious about or struggling with? Let me know! Reply to this email and I’ll try my best to help.