Family friends and fools

crowdfunding what is it

When starting a business, financing is usually one of the main “headaches” to be faced. How much money is needed? and, above all, where to get it? are usually the main questions that arise for the entrepreneur.

The sources of financing to which to resort to obtain liquidity or loans for companies are many and increasingly varied, thanks to the incursion into the credit circuit of new players such as P2P Lending platforms or equity crowdfunding. Nor can we forget the banks, the main player in the official credit circuit. But there is another resource, the most accessible of all, which has been baptized in English as the “three efs”.

Friends and family, being the closest environment of the entrepreneur and having an emotional relationship with him, are usually easier to convince of the suitability of the project than private lenders. Moreover, since there is an emotional bond, it will be much easier to make them see the necessity of their participation in the project by providing capital.

crowdfunding definition

3 “F” – Family, Friends & Fools, i.e. family, friends and fools. It is the so-called “love capital”, i.e. money raised from family and friends who believe in the potential of your business idea. The amount should be invested for the start-up or development of the company.

This solution may be a possibility to consider, mainly to escape the high interest rates of banks and other financial institutions. Even if a personal commitment is established, it does not mean that you cannot continue to look for other types of investments and investors. At this stage you can also invite friends who share the same vision to join your company as partners.

Without the support of the three “F’s” – Family, Friends & Fools, most venture capitalists are more cautious about investing in your project because if your family and friends don’t believe enough in your idea, why would they?

seed capital

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friends, family and fools meaning

The entrepreneur has an idea, wants to start it up, finds a way to do it, gets the business off the ground, but… comes up against the problem of financing. What does he do? He turns to those closest to him. That is to say, to the family and friends to finance his company.

The entrepreneur has an idea, wants to start it up, finds a way to do it, gets the business off the ground, but… comes up against the problem of financing. What does he do? He turns to those closest to him. That is to say, to the family and friends to finance his company.

The sentimental factor is key since the relationship is close, there is a certain trust to ask for money. How much? It depends, but experts estimate that from 1,000 euros to 200,000 euros. Significant amounts to get a business off the ground in its initial phase. “It is a very personal choice, and you have to understand the risks and implications very well. And, above all, be absolutely clear about the risk assumed by the family member and friend when leaving the money,” says Javier Megías, CEO and co-founder of Startupxplore and expert in financing.