I find I am running into the same conversation over and over again with entrepreneurs. I am not sure why, but I know its source: wishful thinking.
Let me just be clear about this, wishful thinking is an important part of the entrepreneur personality. It is what drives us all to do things that our friends and family think are crazy. Nevertheless, properly applied, wishful thinking creates great companies.
Here is the problem: You are highly unlikely to get funding, strategic partners or advisers if you don’t have any skin in the game.
All the work you do at the drawing board putting your idea together and all the work you do running around taking meetings and making contacts is worth very little in the eyes of investors, strategic partners, advisers and even attorneys, accountants and other service providers if you don’t have any of your own money in the project or money invested by your friends and family.
The reasoning behind reluctance to work with startups with no FFF (Friends, Family & Fools) money is the perception that the entrepreneur has no moral commitment to making the project work. So many entrepreneurs simply lose interest, get hired somewhere or get too discouraged to proceed. No investor or strategic partner wants to take on that risk. The thinking is that, if you have taken money from the people closest to you, there is a great personal incentive to stick with the project and somehow make it work. It also gives the impression that the people who really know you don’t think you are a good investment – so why would an outsider think you are a good investment.
I know now-successful entrepreneurs who lost their houses, wives, cars, friends and made their families very unhappy while building their companies. They believed so strongly that their ideas were bound for success that they begged, made promises and did anything else they could to get money to develop those ideas until they could get seed funding.
Your seed round is not your first funding.
Your Friends & Family round is your recommendation to Seed Round investors. It looks bad if you can’t get anyone who knows you to invest a few thousand dollars in your business idea. Often, these people also want to see that you have sacrificed your lifestyle and savings to build your company.
Set aside your pride and get out there begging your family and friends for money. It doesn’t have to be much money – some can only afford a few hundred dollars. A thousand dollars is good. Five thousand or more, fantastic! That money allows you do hire consultants, attorneys, accountants, take trips, build prototypes and anything you need to do to prove your concept and prove your willingness to take your idea all the way.
If you are not willing to hit up friends and family, or if they all smile and politely decline, it is time to re-consider the wisdom of your idea and the impression you are making on the people around you.