How to Raise Startup Seed Funding from Friends and Family, Instead of VCs

4. Don’t drink too much from one source.

When I started my first company, our largest investment was from one single investor — $70,000. While we ultimately made him money and he could have afforded to lose his investment, it would have been more comfortable for everyone involved to have received a little less from a single source.

It’s also not the end of the world if one of your potential investors turns you down. Don’t press for money from someone who is uncertain because they will be the first to complain when things are not going as well as you had hoped.

5. Set a realistic valuation.

Don’t set your valuation too high. While you are trying to get a good deal for your business, your investors should be getting a good deal as well. They are, after all, your friends and family.

Also, don’t underestimate the power of a friends and family seed round — it can set you up for a second round from an angel or VC down the road.

If you can illustrate that your family and friends believe in you, and you’ve hit promised milestones it gives you credibility. You don’t want angels watching your pitch thinking, “This guy couldn’t even get his Mom to believe in him, so why should I?”

Ultimately, I encourage you to think about friends and family as a viable way to gain your first round of funding.

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Photo Credit: Zio Zia

Nathan Lustig is the Co-Founder of Entrustet, a website that helps people access, transfer and delete online accounts when someone passes away. He is also the founder of Capital Entrepreneurs, a Madison, WI based founders meetup group that has helped organize the Madison startup community. Lustig also runs an active entrepreneurship blog called Staying out of the Cubicle.