This is a redux of a blog post I wrote on July 31, 2010, when I was deep in the process of raising capital for my company, TrueBody Products. Still applicable today.
For anyone who’s tried to raise investment capital for a start-up business, “Friends and Family” is the first place you’re told to look. It usually has a third “F word” tacked on the end: Fools.
Venture capitalists and angel investors use the term a lot, as in “how much have you raised from friends, family and fools?” More often it’s literally just “how much F-F-F money have you raised?” I’m not kidding, they really say that.
The “fools” part of this has always bothered me, so I was happy to hear a different interpretation for the last F Word: Followers. Your friends, family members and early adopters are usually the only ones you can convince to give you money to get your idea off the ground. You’re still too risky for angel investors (i.e. strangers with money). And venture capital funds won’t give you the time of day until your revenue figure hits the high six digits.
So I’d like to give a shout out to all the Friends, Family & Followers out there. These are people like my best friend from business school and her dad, my boss from my last “real” job, and a cousin who came into an unexpected inheritance and wanted to put some money where his values are. They believed in me and my crazy idea before I ever made a single bar of soap.
Without people like them, a lot of successful businesses would never have gotten past the idea stage. A lot of innovative products and services would still be just a dream rattling around in a frustrated entrepreneur’s head instead of breaking into the market where they might do some good. Plain and simple, friends and family investors support and encourage creativity in our economy. This article in Inc. shows that once businesses make it past the two year mark, their likelihood of failure drops dramatically. Considering what’s going on in the stock market these days, those seem like pretty good odds. So who’s the fool?