𝗪𝗵𝗲𝗻 𝘆𝗼𝘂 𝗮𝗿𝗲 𝗷𝘂𝘀𝘁 𝘀𝘁𝗮𝗿𝘁𝗶𝗻𝗴 𝗼𝘂𝘁, 𝗶𝘁’𝘀 𝗰𝗼𝗺𝗺𝗼𝗻 𝘁𝗼 𝘁𝘂𝗿𝗻 𝘁𝗼 𝗳𝗮𝗺𝗶𝗹𝘆 𝗮𝗻𝗱 𝗳𝗿𝗶𝗲𝗻𝗱𝘀 𝗳𝗼𝗿 𝗶𝗻𝗶𝘁𝗶𝗮𝗹 𝗳𝘂𝗻𝗱𝗶𝗻𝗴 

While their support can be invaluable, it also comes with challenges. It’s essential to structure this round properly to protect your business, relationships, and yourself as a founder.

Here is what you need to keep in mind:

1. 𝗧𝗿𝗲𝗮𝘁 𝗜𝘁 𝗟𝗶𝗸𝗲 𝗮 𝗙𝗼𝗿𝗺𝗮𝗹 𝗜𝗻𝘃𝗲𝘀𝘁𝗺𝗲𝗻𝘁 𝗥𝗼𝘂𝗻𝗱

 𝗖𝗹𝗮𝗿𝗶𝘁𝘆 𝗼𝗻 𝗧𝗲𝗿𝗺𝘀: Clearly define the terms, whether it’s equity, loans, or convertible notes, to avoid confusion down the road.

 𝗔𝘃𝗼𝗶𝗱 𝗙𝘂𝘁𝘂𝗿𝗲 𝗖𝗼𝗻𝗳𝗹𝗶𝗰𝘁𝘀: Set expectations early to prevent disagreements over ownership or decision-making power.

 𝗥𝗲𝗽𝘂𝘁𝗮𝘁𝗶𝗼𝗻 𝗠𝗮𝘁𝘁𝗲𝗿𝘀: Professionalism now reflects positively on your future rounds.

2. 𝗧𝗵𝗲 𝗣𝗶𝘁𝗳𝗮𝗹𝗹𝘀 𝗼𝗳 𝗜𝗻𝗳𝗼𝗿𝗺𝗮𝗹 𝗔𝗴𝗿𝗲𝗲𝗺𝗲𝗻𝘁𝘀

Without formal agreements, you risk:

 𝗨𝗻𝗰𝗹𝗲𝗮𝗿 𝗥𝗼𝗹𝗲𝘀: Family members might expect a say in business operations.

 𝗣𝗿𝗲𝘀𝘀𝘂𝗿𝗲 𝗳𝗼𝗿 𝗤𝘂𝗶𝗰𝗸 𝗥𝗲𝘁𝘂𝗿𝗻𝘀: Startups often take time to generate profits, which may not align with expectations.

 𝗦𝘁𝗿𝗮𝗶𝗻𝗲𝗱 𝗥𝗲𝗹𝗮𝘁𝗶𝗼𝗻𝘀𝗵𝗶𝗽𝘀: Money can complicate personal relationships without a formal structure.

3. 𝗨𝘀𝗲 𝗮𝗻 𝗘𝗾𝘂𝗶𝘁𝘆 𝗥𝗼𝗹𝗹-𝘂𝗽 𝘁𝗼 𝗦𝗶𝗺𝗽𝗹𝗶𝗳𝘆 𝗬𝗼𝘂𝗿 𝗖𝗮𝗽 𝗧𝗮𝗯𝗹𝗲

An Equity Roll-up aggregates small investors into one entity, simplifying your cap table and protecting founder control.

 𝗜𝗻𝗳𝗲𝘀𝘁𝗼𝗿 𝗣𝗿𝗲𝗳𝗲𝗿𝗲𝗻𝗰𝗲: Future sophisticated and institutional investors prefer clean cap tables.

 𝗙𝗼𝘂𝗻𝗱𝗲𝗿 𝗖𝗼𝗻𝘁𝗿𝗼𝗹: Equity Roll-Ups help founders retain decision-making power.

4. 𝗣𝗿𝗼𝘁𝗲𝗰𝘁 𝗬𝗼𝘂𝗿𝘀𝗲𝗹𝗳 𝗮𝗻𝗱 𝘁𝗵𝗲 𝗕𝘂𝘀𝗶𝗻𝗲𝘀𝘀

Formal agreements and an Equity Roll-up to help with:

 𝗟𝗲𝗴𝗮𝗹 𝗣𝗿𝗼𝘁𝗲𝗰𝘁𝗶𝗼𝗻: Properly structured agreements protect you from disputes and ensure compliance.

 𝗣𝗿𝗲𝘀𝗲𝗿𝘃𝗶𝗻𝗴 𝗘𝗾𝘂𝗶𝘁𝘆: Avoid giving away too much equity early on, so you retain control as the company grows.

 𝗙𝘂𝘁𝘂𝗿𝗲 𝗙𝘂𝗻𝗱𝗶𝗻𝗴: A well-structured family and friends round sets you up for successful future funding rounds.

𝗧𝗿𝗲𝗮𝘁 𝘆𝗼𝘂𝗿 𝗳𝗮𝗺𝗶𝗹𝘆 𝗮𝗻𝗱 𝗳𝗿𝗶𝗲𝗻𝗱𝘀 𝗿𝗼𝘂𝗻𝗱 𝘄𝗶𝘁𝗵 𝘁𝗵𝗲 𝘀𝗮𝗺𝗲 𝗽𝗿𝗼𝗳𝗲𝘀𝘀𝗶𝗼𝗻𝗮𝗹𝗶𝘀𝗺 𝗮𝘀 𝗮𝗻𝘆 𝗼𝘁𝗵𝗲𝗿 𝗳𝘂𝗻𝗱𝗶𝗻𝗴 𝗿𝗼𝘂𝗻𝗱.

Formal agreements, Equity Roll-Ups (ERUs), and clear communication will 𝗽𝗿𝗼𝘁𝗲𝗰𝘁 𝘆𝗼𝘂𝗿 𝗯𝘂𝘀𝗶𝗻𝗲𝘀𝘀 𝗮𝗻𝗱 𝗿𝗲𝗹𝗮𝘁𝗶𝗼𝗻𝘀𝗵𝗶𝗽𝘀. Take the time to do it right—you, your investors, and your business will all benefit in the long run.