Raising funding is typically the hardest part of launching a business, especially for a first-time entrepreneur.
There are several sources for entrepreneurs looking for early-stage capital: angel investors, high-net-worth individuals who typically invest less than $1 million; loans from traditional banks or entrepreneur-focused banks such as BDC; government grants through programs like IRAP; startup accelerators such as FounderFuel, which typically offer funding and mentorship in return for a small equity stake; and crowdfunding sites such as Kickstarter.
Another source is what is sometimes called love money — funds raised through an entrepreneur’s personal network of family members, friends, or business associates.
Daniel Eberhard, co-founder and chief executive at Koho, a Vancouver-based financial tech company that is launching a mobile and web-based alternative to a traditional bank account, raised $100,000 in friends and family funding for his first venture, and he said going to friends and family was the most efficient way to raise money, especially because they were selling a complicated concept with no real experience.
“When you are unproven, you have to do what you can to get your vision off the ground,” Eberhard said. “Often family money is the best way to do that.”
Friends and family funding isn’t just for first-time founders though. Paul Teshima was on the founding team at marketing automation company Eloqua, which raised $92 million through its IPO in 2012. Now, as co-founder of Nudge, a social selling platform, he decided to raise money through family and friends to stay in control of growth.
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