Have you ever had someone tell you that you should consider FF&F for financing your business start-up and you thought to yourself, "What the hell are they talking about"? Basically FF&F stands for Friends, Family and Founder. These are sources of early funding/equity for your business.
Founder ~ You are the first source of funding for your business. Whether you are bringing your own cash or have tapped other sources such as a home equity loan you need to bring something the table. Some people call it "having skin in the game". You really need to self fund the initial start-up. Let me be clear...I am talking about cash not sweat equity. If you have funded a prototype or intellectual property activity or something like that out of your own pocket that counts but thinking about the business and writing a plan won't cut it.
Family ~ Family is another source of early funding. Family is usually great at this stage because you probably haven't gotten the business far enough along to discuss funding with strangers. Family usually invests in you because of you not the details of the business. Be careful here though. If you are swapping equity for family funding and you give uncle Joe 10% expect that amount to be reduced at future funding events. While that doesn't make Thanksgiving dinner as uncomfortable as if you lose all of uncle Joe's money it is still a little tense.
Friends ~ Again, similar to family, friends may not be into heavy due diligence on the company before they invest. It is still about you more than the business. They will probably need more of an explanation of what you are planning to do but they won't need to have their lawyer write out a term sheet to present. Go out get a couple of beers and pitch your buddy. Remember, however, that nothing changes a friendship like money.
Sometimes you also see it as FFF&F but we will leave the discussion of the fourth F ~ FOOLS until another post.
What are your thoughts on this form of early stage capital?
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