
Ask HN: Is it weird to do a friends/family round after doing an accelerator? - gnicholas
My startup was in the first batch of the Intel Education Accelerator. Our demo day had a bunch of VCs and very few angels. Because of this, it feels weird to me to consider doing a friends and family round — like it&#x27;s somehow a failure. But none of our other startups in our cohort raised VC money coming out of the accelerator, which makes me wonder if I&#x27;m being irrational.<p>I&#x27;ve spent quite a bit of time talking with VCs that aren&#x27;t a good fit, often because they want to write bigger checks that we&#x27;re looking for. I have half a dozen friends and family who have expressed strong&#x2F;repeated interest in investing, and it would be a lot faster to close a round than courting angels&#x2F;VCs that I don&#x27;t know.<p>Does anyone know what&#x27;s &quot;normal&quot; for a startup coming out of an accelerator? Would it be a red flag for future investors if we raised from friends&#x2F;family at this point?
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smt88
The most successful company will raise $0, in theory. Raising more money from
bigger names is _not_ a metric of success. It's not an indicator that you're
going to succeed or not. In fact, it may indicate that your goal is harder,
since your product doesn't immediately generate revenue and prove itself to be
profitable.

If you want to raise a friends/family round (the size and terms work for you),
then do it. Stop thinking about whether your round looks like success or not.
Again, you'd be better off if you were cash-flow positive and didn't need to
raise at all.

I would say, though, that friends/family rounds are a great way to destroy
relationships with friends/family if they're not absolutely loaded. Startups
are one of the worst and riskiest investment vehicles, and you don't want
someone with < $1M in assets to lose, say, $50k on your startup.

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gnicholas
Good points, thanks! I'm not concerned solely with signaling (also important
to work with investors with relevant expertise and connections, of course),
but I would be more reluctant to do a f/f round if it were going to be taken
as a strong negative signal in future rounds.

Appreciate your and brudgers mentioning the personal relationship aspect of
taking f/f investments. That's definitely a consideration also.

~~~
NumberCruncher
If your friends/family want to support you they could offer you free
accommodation (living at their place) as long as you work on your startup.

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brudgers
The big question to me is not 'what does it signal?' The big question is do
the friends and family really understand they are investing in a vehicle where
the profits come from spreading risk across a portfolio of companies and all
their eggs are in one basket.

Professional Venture Capital understands that and have sufficient capital to
diversify their risk. It (hopefully) has the experience to project how much
money a company is likely to actually need in order to have a chance at
successful startup growth. It will tend to hard push the upside rather than
protect against the downside more so than individual investors.

To me, the business decision should be a business decision. Which investors
would you choose based on track record and the ability to add value?

Good luck.

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arikr
> Does anyone know what's "normal" for a startup coming out of an accelerator?

Most startups I've seen out of YC get the bulk from accredited investors

> Would it be a red flag for future investors if we raised from friends/family
> at this point?

The only true red flag is a product that users don't love or no growth

Amazon's first funding came from Bezos' parents. Friends and family funding
won't kill your company

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gnicholas
This was my sense regarding YC as well, but I wonder about other accelerators,
since the vast majority of accelerated startups come out of something other
than YC (and I realize that HN skews YC, but hope there are some folks with
other expertise to share).

I realize that Bezos and many others have gotten funding after doing a
friends/family round; I'm wondering if there are ever red flags associated
with f/f rounds, such as if they happen after completing an accelerator.

~~~
arikr
Short answer is investors will question it (they may or may not ask these
questions, they will be thinking them) "why did they raise from f/f and not
institutions then" "what did those investors who presumably said no know that
i didn't" "are they better now?"

but it's not a massive red flag unless there are scary answers to the above qs

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rajacombinator
I think you should take a step back and personally consider it a red flag if,
after strong exposure through an accelerator, you're unable to get substantial
interest from institutional investors. That's what accelerators are for.

The "checks too big" problem doesn't really fly IMO. If some strangers really
want to give you a check for $X million for something that is currently worth
$0 million, you should do it. Worrying about maintaining equity is silly,
because you can just think of it as reducing future fundraising needs.

Also, if the checks are really too big, surely these professional investors
would find another way to make it work with a smaller check, or introduce you
to smaller professional investors downstream in their pipeline. Most likely,
"checks too big" is their way of letting you down gently.

Do you really want to ask F&F to put money into something that professionals
are not that enthusiastic about? They are most likely unsophisticated
investors and you risk damaging your relationship with them. Accordingly, your
confidence in the startup should be quite high to take their money.

I think the signaling risk is irrelevant. If you take the F&F money, either it
will be enough to get you to the next level needed to raise more or it won't.
(Or you won't need to raise more, so again it's irrelevant.)

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gnicholas
Thanks for the candor. If we were the only startup in our cohort not to raise
from VCs, I'd certainly have some concerns. I think the accelerator had some
flaws (it was their first cohort), and we ended up not actually being exposed
to suitable potential investors, which is why no one raised coming out of demo
day. You make a good point about introductions to smaller investors — that's
certainly something to think about.

I agree that in most cases a startup should open to taking large checks, but
we're a bit of an anomaly in that we're a licensing business with relatively
light expenses. So we're only looking to raise around $300k, which doesn't
make sense for most of the VCs we met through the accelerator. I understand
that they have to put cash to work, and that if they prefer a 5x return on a
$10M check than a 10x return on a $250k check. With such a small investment,
there's basically no chance that we materially impact their fund's overall
return.

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borplk
Not that I'm any expert but I would always try to stay away from a
"friends/family" round regardless of other factors.

I know it's not what you want to hear but statistically you are setting
yourself for trouble. When you can try to prevent the effect of your work from
leaking into other areas of life.

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aminozuur
Yes, it is weird.

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gnicholas
Thanks for weighing in! Are you a funder, entrepreneur, or other?

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aminozuur
I'm just a dude who likes to build simple web apps. I only use the term
'entrepreneur' when someone has had significant impact.

I don't think you should worry about 'what is weird', try to do what you think
best regardless of how it may look.

