Guide To Raising Capital From Family, Friends & Founders


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Download the Free eBook Guide To Raising Capital From Family, Friends & Founders here:

This book overviews best practices for raising money from the first people you go to — your family, friends & founders. Dealing with money in personal relationships can get a bit tricky. This book will cover fundamental concepts, legal issues and material you’ll need. It will help prepare you for the difficult conversations and in some cases enable you to avoid them altogether.

I. Funding Timeline
II. Achieving Milestones
III. Common Practice
IV. Bringing on a Co-Founder
V. Approaching Friends and Family
VI. Pitching Your Business
VII. IRS Limits
VIII. Who To Approach
IX. Business Plan
X. Request Amount
XI. Promissory Note
XII. Progress Updates

If you need to discuss your funding strategy or business plan, schedule a free consultation with one of our startup experts (800) 385-7984 or visit our website:

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Guide To Raising Capital From Family, Friends & Founders

  1. 1. h"p://     Outline  of  Free  eBook  
  2. 2. h"p://     About  the  Author         TYLER  JENSEN   In  2008,  Tyler  founded  The  Startup  Garage  to  help  entrepreneurs  and   business  owners  achieve  success  in  their  business  ventures,  as  well  as   their  lives.  Tyler  is  a  serial  entrepreneur,  having  launched  or  help   launch  over  100  companies,  including  non-­‐profits  and  social   enterprises.  He  has  developed  an  extensive  network  of  business   relaIonships  to  help  founders  achieve  the  milestones  investors  care   about.       The  Startup  Garage  Team  has  helped  raise  over  $200  million  for   startup  businesses.            
  3. 3. h"p://     Table  of  Contents     I.     Introduc>on       §  Funding  Timeline   §  Achieving  Milestones   II.     Start  Raising  Capital  With  FFF   §  §  §  §  Common  PracIce   Bringing  on  a  Co-­‐Founder     Approaching  Friends  and  Family   Pitching  Your  Business   III.     Tax  Issue:  GiH  vs.  Loan   §  IRS  Limits           IV.       Selec>ng  Lenders       §  Who  To  Approach   V.            Materials  To  Prepare   §  Business  Plan     §  Request  Amount   §  Promissory  Note     VI.       AHer  The  Loan   §  Progress  Updates  
  4. 4. h"p://     Startup  Funding  Timeline   High-­‐growth  startup  funding  is  typically  split  into  three   rounds:   •  Friends,  Family  and  Founder  (FFF)  capital  –  ranging  from   $25,000  to  $50,000   •  Seed  Capital  from  Angel  Investors  –  ranging  from$250,000  to   $750,000   •  Series  A  and  Series  B  capital  from  Venture  Capitalists  –   ranging  from  $3,000,000  to  $10,000,000    
  5. 5. h"p://     Achieving  Milestones   •  •  •  •  •    Business  plan   Personal  investment   CapitalizaIon  strategy  and  milestone  Imeline   Market  validaIon   Prior  success  
  6. 6. h"p://     Common  Prac>ce   According  the  Global  Entrepreneurship  Monitor     (Babson  &  London  School  of  Business),  $50  billion  to   $75  billion  is  invested  annually  by  friends  and  family   in  U.S.  startups.    
  7. 7. h"p://     Bringing  On  A  Co-­‐Founder   While  your  friends  and  family  present  a  great  opportunity   to  raise  capital  to  launch  your  business,  you  and  your  co-­‐ founders  should  plan  on  personally  invesIng  in  the   business.  Investors  at  any  stage  like  to  see  that  you  have   commi"ed  personal  funds  in  addiIon  to  sweat  equity.    
  8. 8. h"p://     Approaching  Friends  and  Family   By  taking  the  loan  seriously  and  presenIng  your  friends  and   family  lenders  with  the  legal  documents  of  a  legiImate  business   transacIon,  you  open  the  discussion  to  the  issues  that  are  unique   to  mixing  friends,  family  and  money.       Possible  issues  could  be:   •  •  •  •  DisappoinIng  Friend  or  Family  Member  If  Company  Fails   Unable  to  Keep  Up  With  Repayment  Calendar       “Favor  War”   Lender  WanIng  to  Manage  Business  OperaIons    
  9. 9. h"p://     Pitching  Your  Business   •  •  •  •  Approach  Pitch  Based  on  Type  of  Lender   Kitchen  Table  Pitch  vs.  Elevator  Pitch     Ask  Lender  for  Help  First   Exercise  PaIence  and  Maintain  RelaIonship    
  10. 10. h"p://     IRS  Limits  on  GiHs   If  you  and  your  lender  agree  to  a  loan  without  interest,   the  IRS  will  “impute”  interest  into  the  transacIon.  The   difference  between  the  loan  without  interest  and  the  loan   with  interest  will  be  counted  as  a  gih  from  the  lender  to   you.    
  11. 11. h"p://     Who  To  Approach   •  •  •  •  Experienced  Business  Owner     Financially  Stable   Trusts  Your  Work  Ethic  and  Judgment   Money  Does  Not  Cause  FricIon  in  Personal  RelaIonship    
  12. 12. h"p://     Materials  To  Prepare   •  Business  Plan   •  Request  Amount:  Formal  Funding  Request  and  Use  of  Funds     •  Next  Milestones:    -­‐  Develop  Product    -­‐  Develop  Team    -­‐  Legal  and  IP  Requirements    -­‐  Market  ValidaIon  
  13. 13. h"p://     Promissory  Note   A  promissory  note  clears  up  any  confusion  or  misunderstanding   that  may  arise  due  to  the  unsophisIcated  nature  of  the  lender/   borrower  relaIonship.         What  Should  Promissory  Note  Include?  
  14. 14. h"p://     Progress  Updates   •  Be  honest  with  your  lender  about  the  progress  of  your   business   •  Based  on  relaIonship  with  investor,  decide  best  means   of  contact  to  communicate  updates     •  Focus  on  the  milestones  outlined  in  the  business  plan   that  are  being  achieved    
  15. 15. h"p://     hQp://­‐your-­‐business-­‐today/008b/    
  16. 16. h"p://     Founder Resources & Information
  17. 17. h"p://