

Ask HN: Have you raised money from your friends for your startup?  - dannyr

If yes, how did you approach your friends about it? I'm thinking of asking my friends to invest $1000 each (max) for my startup.
======
smoody
I did both times. The first time was a big risk because it was my first
startup. I don't have advice on the best way to do it, but I can tell you
this: If you're anything like me, then taking money from your friends and
family will insure you keep the startup going no matter how bad things get.
There's almost no greater motivator not to give up than taking money from your
friends' savings accounts. I should have given up several times before we were
acquired. I had to ask all the companies interested in acquiring us for a
small amount of money if they were serious about entering into 'strategic
relationship' discussions -- the money was used to keep the power on, the net
connected, and to keep my team from being evicted from their apartments.
Honestly, I would have shut the company down six months prior had it not been
for the fact that some of my best friends had provided capital. It paid off
financially, but took a big toll psychologically.

~~~
gruseom
What are/were your startups? I find this and some of your other comments
interesting and would like to hear more about your path.

~~~
smoody
My first company was started back in 1996 and was acquired in 1998. It seems
commonplace now, but we were the first company to create a service for web-
based closed membership communities. The service we were developing had photo
albums, calendaring, really advanced messaging boards, an app store, etc. The
company (founded in Seattle) was called "Throw," but, most likely, you
wouldn't have heard of it because it was acquired before we launched our
service. We were one of the five on-stage companies at the Demo conference
back in '98 and within days of being on-stage, after years of not being able
to get anyone's attention, we (there were six of us) were suddenly being
courted by both top-tier VCs and the top three search engines/portals at the
time. We chose to be acquired by Excite.com (which is no longer the company
that it was). Even though it was only two years from start to finish, it was a
long psychological slog and the reason we made it through was because the team
was 100% dedicated to our success no matter what the cost. One member of the
team had over ten maxxed-out credit cards on the day we were acquired (I
didn't find that out until afterwards -- no one ever complained about not
getting paid). Before the Demo conference, I had to ask one of my very best
friends for a substantial loan to keep the company afloat until the
conference. He lent me the money without question. When we were acquired a
couple of months later, I gave him double what I borrowed because, without
that money, we would have shut down. There are dozens of war stories, but I
won't bore you with the details.

The second company, NeoMeo, was also acquired before it launched. I co-founded
that company back in 2000 (in New York City). It was doing Xobni-type things,
but revolved more around making sense of message content. Our service could do
things like recognize dates in emails (expressed in various ways), recognize
phone numbers, create photo albums from your inbox, etc. We eventually sold
the company to Postini which was eventually acquired by Google (for cash), so
my friends who made investments in that company also did okay from a return-
on-investment perspective.

What am I doing now? To be honest, I'm having issues locking onto a single
idea. The fluid nature of the economy has given me pause and caused me to
second-guess myself more often than I normally would. I have a few solid ideas
but haven't committed to one of them yet. So, for now, I've become an
architecture astronaut of sorts (
<http://www.joelonsoftware.com/articles/fog0000000018.html> ) and I'm just
enjoying the thing I love to do the most: designing and implementing an
architecture to keep my skills sharp.

For some reason, I'm reminded of the old joke which I will no-doubt butcher:
Did you hear about the programmer who was found dead in the shower? He was
holding a shampoo bottle that read "Wash. Rinse. Repeat."

~~~
10ren
Twice acquired before launched, wow. To what do you attribute this? Were you
targeting recognized problems in those industries?

------
russell
Dont ask for what they cant give. $1000 is reasonable. If you ask for large
amounts and fail, you could be sued and you will loose because you will have
violated securities laws.

If I were you, I would draft a short letter stating what you were going to do
with the money and state that the venture is highly speculative and likely to
fail. This doesnt protect you but sets the right level of expectations. I
think you need to state what the expected results are. I suggest a non-
recourse personal loan with an understanding that this turns into stock. I am
neither a lawyer nor an accountant. If you want legal advice see one of them.

~~~
dannyr
Yeah. I think $1000 is reasonable. I'm basically making a list of about 20
friends to get a loan from. I still have the intention of paying the loan
though at some point even if my startup fails.

------
RobGR
You will have to research the law yourself, but there is a limit to how many
people can invest in a business before you cross a line into "selling
securities" and have to formally be a real corporation with stock. Not that
you can't do it, you just want to be aware of this and do it correctly. I
think the Nolo books on incorporation should have the information.

