Susan O’Brien is an Irish entrepreneur living in NYC. She is the founder and CEO of Smigin, Co-Chair of the Irish International Business Network in NY, Executive Director of the Leadership & Executive Acceleration Program (LEAP), and an ardent polyglot with a penchant for international travel.
Building a company from scratch is hard. Its even harder when you opt to do so organically, steering clear of the more traditional, well-trodden venture capital route. The rule of thumb financially is to have a years salary as a safety net, but once youve burned your way through that, youre probably going to need to raise some money.
Most startups begin with Friends & Family (F&F) money. Its supposedly the easiest money to raise. Why? You have an existing relationship with these people, they know how passionate you are about starting this company, and they want you to be successful. Chances are, once you weed out those legitimately with no spare cash, and the downright cheap aunts and uncles, youll find some willing candidates.
The best piece of advice I ever got about raising F&F money was dont do it. I should have listened. Now I can reiterate with the same certainty that Im sure the advice-giver, whom I chose not to listen to, had back then. Dont even think about raising capital from friends and family. It will only increase your number of sleepless nights and add to the number of anxiety related stomach dips and rolls that you will experience several times a day as part of normal startup life. Step away from the siblings…
Yes, the business desperately needs some cash, but there are other ways of accessing capital. Of course, your granny wants to help, but do you really want to take her money? The same goes for your sister. What if she is having a hard time making her mortgage repayments next year? Dont you think shell regret that $10,000 she invested in you and wished she could get it back? She only gave it to you in the belief that it would be worth a million dollars by the end of the year. Clearly, thats not happening any time soon. Do you really want to have her staring at you across the dinner table with too tight a grip on her steak knife?
Instead of hitting up your actual family and friends, think instead of finding individual money.’ Not to be confused with angel investors. Angel investors are sophisticated financially independent investors who look for medium risk opportunities. They seek out more established startups who have already proven some traction. They want an indication that this has the ability to be successful. If youre not at that stage, then youll struggle to convince angel investors to write you a check.
Instead, consider affluent individuals. They can be people you know, or can get an introduction to. They are not necessarily friends or acquaintances, nor are they accredited angel investors, just affluent individuals who might be willing to make a $5,000 – $10,000 bet on you and your mad idea.
I did take some money from friends and family in our first round of funding, which still keeps me awake at night, but the majority of that round was made up by those aforementioned affluent individuals. You still feel the same financial responsibility towards these people, but there is significantly less risk of being stabbed at dinner.
There are no hard and fast rules for meeting these folks – you just need to have a lot of conversations with the mindset that each conversation could turn into an investment. Its exhausting as you have to be constantly on your A Game and always in selling mode, but it pays dividends.
I was introduced to a successful business man some time back, and told him, as I did everyone I met, about my startup Smigin– a language learning app for people who travel but dont have time to learn another language. He downloaded the app on the spot and promptly forgot all about it and me, until later that year when he was in Paris. He pulled up the app and was able to order wine without the Parisian waiter rolling his eyes at his lack of French. He called me when he got back to the US and wrote a check.
Opportunities abound, and there are plenty of individuals willing to make small bets. You just need to tell your story to enough people with enough enthusiasm and someone somewhere will pull out a checkbook. For a founder, its the modern day equivalent of pulling out a magic wand. Raising money is not for the faint of heart, but by sticking to people you dont spend Christmas with, the whole experience will be significantly less damaging to your mental and physical health. Youll spend less on indigestion meds too.