Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing.

I’m often asked if you should you take money from family and friends to fund your startup.

Outside investors will look at family-and-friends funding as a sign of support for your business.  

If your family and friends won’t invest, why should the outside investor invest?

Many startups are reluctant to take family-and-friends funding because Thanksgiving turkey tastes different if things don’t work out.

In addition, there’s valuation. I’ve seen some startups give their family a special valuation because well, they’re family.

This becomes a problem later when raising follow-on funding from outside investors. You have to give them the same valuation or higher, or your family loses their equity position.

My recommendation is to take family-and-friends funding as a show of support.

But only as a donation and only in $10K amounts from each person.

Offer to pay them back by supporting their project in the same way when the time comes.

Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.

Let’s go startup something today.
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Disclaimer:
Hall T Martin is the director of Investor Connect, which is a 501(c)(3) nonprofit dedicated to the education of investors for early-stage funding. All opinions expressed by Hall and podcast guests are solely their own opinions and do not reflect the opinion of Investor Connect. This podcast is for informational purposes only and should not be relied upon for the basis of investment decisions.