Why You Shouldn’t Be Afraid To Take Money From Friends And Family

mum allowance money kid

A few people have asked me about the fundraising process recently, and I felt it worth some time to expound on the topic.

In my recent interview on WeAreNYTech, @MJShampine asked me:  You took friends and family money in your first round, how do you feel about that debate (take vs. not take)?

I replied: “You should take the money.  Fear is a great motivator.  If I don’t pull this off, I am going to owe my brother Dave beers for about 50 years, and I will NOT let that happen. Now granted, don’t take Grandma Pete’s milk money, but in general, if the people who know you best don’t trust you, I question if you should trust yourself.”

First let’s just establish the parameter that they need to have the money to invest and understand that all the probabilities are stacked against them ever getting that money back.

On the entrepreneur side, it dramatically increases your sense of urgency, heaps on a rather heavy burden of responsibility and hopefully catalyzes you to work with an intensity driven by a fear of letting your friends down.

Besides my family, who has seen me spectacularly fail (and succeed) more times than I’d like to remember, I’m just as driven by my friends who have invested.  One of them is Dan Rivette.  He was my Ranger buddy in Ranger School (for those who don’t know what that entails, imagine never being allowed more than 3 feet from someone for 2 months straight, bathroom included).  If there’s one person you’re not supposed to fail in life, it’s your Ranger buddy.  I think Dan knows Im going to come through for him, and if not, he has a high degree of confidence that all of me is going to go down trying.

Another investor who meant a lot to me was Sean Morrow.  We met in summer school for maths at West Point.  We were both sucking real bad and we both struggled to pass that class.  I saw in him someone who never gave up.  Someone who kept a smile on his face no matter how bad stuff got, and someone who always looked for a way to succeed no matter the odds.  I hope he saw some of the same things in me, because I fed off his optimism and good nature.  Sean’s another person I can’t let down.  We ended up branching Infantry together and watched ourselves continue to suck (please note Army definition of suck here) in life and continue to laugh about it. 

As an entrepreneur, if you’re wondering whether or not to put Thanksgiving dinners at risk for the next 30 years, do it.  Don’t head into a battle with nothing but a no-name VC’s money to lose.  You have an emotional attachment to your company.  You have an emotional attachment to your team.  You should have an emotional attachment to your money as well.  It seems to me a strange disconnect if you do not. 

I’d be curious to see if there were any stats out there to validate my hypothesis.  Have any VC’s mapped returns comparing companies that started with friends and family money vs. those that didn’t?