Equity Crowdfunding from Friends and Family: per this Founder Institute blog, “a Friends and Family round typically results in anywhere from $10,000 to $150,000 in funding that allows a startup to get through its first few months of operation.”
Increasingly, founders are turning to Wefunder (and Regulation Crowdfunding) to raise this initial Friends and Family Round for a number of reasons, which this blog sets out below. (Disclosure: if you follow the Wefunder links here and do ultimately go with them, your fees will be reduced by $2,500, and I also am also rewarded—Will.)
These days, every early stage founder looking to raise Equity from Friends and Family should at least seriously consider using Regulation Crowdfunding to do that.
Clear and Compliant
When you run a Wefunder campaign, it is very clear what terms investors are investing on. They sign an electronic contract, which is shared with you and your investors, and eliminates any ambiguity or confusion in later financing rounds.
To formally launch a Regulation Crowdfunding campaign, you need to file a “Form C” with the SEC. Our team conducts a compliance review of your Form C, the filing of which allows you to both raise capital from unaccredited investors, and publicly promote your Wefunder campaign, in a legally compliant way.
Streamlined and Efficient
Wefunder has built outstanding software to make raising capital as smooth and easy as possible. Thanks to the new “Testing The Waters” regulations rolled out in March 2021, you can now launch a Wefunder campaign in a matter of minutes.
We have standard YC SAFE and Cooley Convertible Note templates that you can use for free, as well as Revenue Share and Loan contracts. And our team works with you to gather all the information needed to file your Form C, and formally launch your campaign.
You might still need to walk some larger investors through a PowerPoint deck in a meeting, but a lot of your Wefunder investors will just invest $100 (or $5,000) through the website – without you needing to spend any time regurgitating the same pitch for the 200th time. That’s a delightful time saving.
Exposure and Engagement
And of course, the most obvious ways that raising a Friends and Family Round on Wefunder can save you time is by allowing you to (a) raise capital from unaccredited investors as well as accredited investors (i.e. 100% of the population vs. just 5% of the population); (b) publicly promote your Wefunder campaign; and (c) get in front of Wefunder’s million-strong investor base.
Instead of only pitching a tiny number of very wealthy friends and family members, you can now share the campaign with everyone you know – e.g. by email, on social media, by organizing an event, etc.. Not only does this help you raise capital more quickly, but it can also be valuable exposure for your startup.
As with all investors, your Wefunder investors are financially incentivized to support you in growing your company – by helping you hire people, connect with customers, get product feedback, etc. Enabling more people to invest in your startup means more people that can help you.
And being a part of the Wefunder portfolio has benefits too. Wefunder founders have access to a host of discounts (with Notion, Brex, GoogleCloud, Stripe, etc.), and our team will try to support you in whatever you need on your startup journey.
Why Not Equity Fundraising from Friends and Family?
All that being said, there are three things to flag as reasons why you might not choose to run a Friends and Family Round on Wefunder.
Firstly, we charge a 7.5% fee on the amount you raise. So if you raise $100,000, we keep $7,500, and send you $92,500. Although we do waive those fees on investments of $25,000 or more that you bring in, so if 50% of that $100,000 came in two investments of $25,000 each, you would only pay us $3,750.
Secondly, the SEC requires that you disclose financials with your Form C filing – two years of P&L, Cashflow and Balance Sheet (or going back to the start date of the company if it’s younger than two years old). If you’re looking to raise more than $250,000, these financials need to be reviewed by an independent CPA. Most startups looking to raise a Friends and Family Round have very minimal financials, so this isn’t very hard or time-consuming to pull together, but if your financials are more complex or messy, this can become more of a burden.
Thirdly, some early stage startups want to remain in stealth mode, and so a public approach to raising capital is not a good fit.
But these three concerns should only be dealbreakers for a tiny proportion of startups. Raising capital is usually challenging. And if it would be hard for you to raise $150,000 in a Friends and Family Round outside of Wefunder, it will probably be hard for you to raise that on Wefunder too. But it will be easier, quicker, and more professional. And also more fun.
If you are looking to raise a Friends and Family Round, you can learn more about Wefunder, start an application, and jump on a call with our team here: wefunder.com.
Other Advantages Equity Fundraising from Friends and Family—through Wefunder
Jonny Price, a fellow Brit, very kindly agreed for me to repost his Wefunder blog post on Equity Fundraising from Friends and Family. It seems to me to be very important and a significant advance on calling pals and relatives directly to raise equity investment. My own reasons for making this claim are:
- You are less likely to cause friction with people you care about, by asking for money through a trusted intermediary; or worse, if you have bad news to tell after the raise, the risk rupture will be significantly reduced.
- The formality of doing Equity Fundraising from Friends and Family through Wefunder will strengthen your case, by comparison with doing it in the living room.
- If you are doing a family raise directly, you will, of course, use legal protection for both parties. Nonetheless, you will be dealing with investors directly and that can present problems. In addition, rather than ‘reinventing the wheel yourself’, Wefunder has ‘been there, done that.
- If you are seeking a loan, rather than equity capital, then you’ll use a promissory note, which will protect the lender, in the event of default on repayments. A promissory note will need to be negotiated with each separate lender, because while old Aunt Mabel may be only too happy to lose it all, your high school buddy may want some way of being protected.
- To use Wefunder will give the investor a feeling of security, because there will likely be others investors outside your family and circle of friends. Also the probability is that a startup using the equity crowdfunding route is going to go on to later rounds of fundraising. Wefunder describe themselves as being angel investing for everyone. They have also seen over $5 billion of follow-on financing into startups first funded on Wefunder.If you are still determined not to use Wefunder or go only for loans because you don’t want to dilute your ownership, then at least check out what I have to say about Loans from Family and Friends.