Scarinci Hollenbeck, LLC, LLCScarinci Hollenbeck, LLC, LLC

Firm Insights

Should Your New Jersey Start-Up Ask Friends and Family for Funding?

Author: Dan Brecher

Date: May 12, 2015

Key Contacts

Back

Friends and family can be counted to provide lot of things — a ride to the airport, a warm meal, or a shoulder to cry on. But should they serve as initial investors in your New Jersey start-up?

Pig with money

Many new ventures have difficulty securing loans or attracting venture capital funding in the early stages. When founders tap their own resources, friends and family can be a welcome source of capital. Startups can often raise $50,000 to $500,000 and more through this type of financing. And it generally only takes a matter of weeks, as compared with the often-complex venture capital fundraising process.

Of course, there are pitfalls. So before you make the call, there are several points to consider:

  • Keep it professional: While you may be accustomed to meeting with your friends to watch the ballgame over beers, your request for financing should receive their full attention. This means scheduling a separate meeting to discuss your venture. While a formal boardroom is not necessary, you will want to ensure that you have their undivided attention.
  • Make a presentation: Don’t assume that your friends and family have been paying attention to your business plans. Treat them like any other potential investor by delivering a pitch that includes all the pertinent information they will need to make an informed decision.
  • Have a Written Plan: You will need appropriate written documentation of what you present, including: a discussion of how much you are intending to raise; what it will be spent on; what you expect to accomplish; what the investment purchases in terms of equity interest and/or debt; and, who the management team is and their backgrounds. It is also best to disclose known or foreseeable material risks.
  • Consider debt over equity: If you don’t want your friends and family to have an active say in how you run your company, it is advisable to ask for a loan rather than to offer a stake (equity) in your company in return for funding.
  • Formalize the arrangement: Even if your parents or college roommates are the ones helping your business get off the ground, it is imperative to memorialize the agreement in writing. For a loan, you will need to prepare a promissory note, and for an investment in equity you will need a subscription agreement. Loans may be permitted to convert into equity, depending on the structure of the transaction and the documentation used.
  • Be mindful of securities regulations: Friends and family financings will likely involve offering securities which are regulated under the Securities Act of 1933, as well as state laws. To avoid burdensome registration and filing regulations, consult with experienced counsel to determine whether one of several regulatory exemptions may apply.

Lastly, it is important to remember that business dealings with friends and family can be more delicate than arms’ length transactions. So, if you want to remain on good terms, it is essential that everyone be on the same page.

No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.

Scarinci Hollenbeck, LLC, LLC

Related Posts

See all
Common Causes of Partnership Disputes and How to Resolve Them post image

Common Causes of Partnership Disputes and How to Resolve Them

Business partnerships, much like marriages, function exceptionally well when partners are aligned but can become challenging when disagreements arise. Partnership disputes often stem from conflicts over business strategy, financial management, and unclear role definitions among partners. Understanding Business Partnership Conflicts Partnership conflicts place significant stress on businesses, making proactive measures essential. Partnerships should establish detailed […]

Author: Christopher D. Warren

Link to post with title - "Common Causes of Partnership Disputes and How to Resolve Them"
President Trump's Termination of Member Gwynne Wilcox post image

President Trump's Termination of Member Gwynne Wilcox

On January 28, 2025, the Trump Administration terminated Gwynne Wilcox from her position as a Member of the National Labor Relations Board (NLRB or the Board). Gwynne Wilcox, a union side lawyer for Levy Ratner, was confirmed to the Board for an original term in 2021 and confirmed again for a successive five-year term expiring […]

Author: Matthew F. Mimnaugh

Link to post with title - "President Trump's Termination of Member Gwynne Wilcox"
How to Dissolve a Corporation in New Jersey: A Step-by-Step Guide post image

How to Dissolve a Corporation in New Jersey: A Step-by-Step Guide

Closing your business can be a difficult and challenging task. For corporations, the process includes formal approval of the dissolution, winding up operations, resolving tax liabilities, and filing all required paperwork. Whether you need to understand how to dissolve a corporation in New York or New Jersey, it’s imperative to take all of the proper […]

Author: Christopher D. Warren

Link to post with title - "How to Dissolve a Corporation in New Jersey: A Step-by-Step Guide"
Gross Lease vs. Net Lease: Understanding the Key Differences post image

Gross Lease vs. Net Lease: Understanding the Key Differences

Commercial leases can take a variety of forms, which is often confusing for both landlords and tenants. Understanding the different types, especially the gross lease structure, is important when selecting the lease that best suits your needs. One key distinction between lease types is how rent is calculated and paid. This article addresses the two […]

Author: Robert L. Baker, Jr.

Link to post with title - "Gross Lease vs. Net Lease: Understanding the Key Differences"

No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.

Sign up to get the latest from our attorneys!

Explore What Matters Most to You.

Consider subscribing to our Firm Insights mailing list by clicking the button below so you can keep up to date with the firm`s latest articles covering various legal topics.

Stay informed and inspired with the latest updates, insights, and events from Scarinci Hollenbeck. Our resource library provides valuable content across a range of categories to keep you connected and ahead of the curve.

Let`s get in touch!

* The use of the Internet or this form for communication with the firm or any individual member of the firm does not establish an attorney-client relationship. Confidential or time-sensitive information should not be sent through this form.

Sign up to get the latest from the Scarinci Hollenbeck, LLC attorneys!