Balancing Friends & Family Money with Seasoned Investor Capital
August 09, 2024
by a searcher from Babson College - F.W. Olin Graduate School in United States
Following on an earlier post about friends and family funding, I’m seeking advice on the ideal balance between friends & family contributions and with that of seasoned search investors in a traditional search fund. I have close connections who are eager to contribute, particularly during the search phase, but I’m concerned they may not be able to commit the same level of capital that seasoned investors or funds might provide during the acquisition phase.
I’ve received conflicting advice on this and would appreciate insights on how to strike the right balance. What mix have others found effective, and how did it impact your search fund's success?
from California State Polytechnic University in Los Angeles, CA, USA
Some things I have found generally helpful to consider are: 1) if/how they would be helpful in the search 2) if/how they can participate in the acquisition round, 3) What role would they take post acquisition 4) have they made similar investments and in what capacity. 5) what kind of relationship already exists between you to and how will it change/grow
This is just to name a few questions to consider. I am sure there are more we can expand on. Some of this list may seem redundant because it's things you would consider when evaluating any potential investor. So at the end of the day, use your best judgment and be mindful of the risks/benefits.
from Lindenwood University in St. Louis, MO, USA
1. Desired Outcome: What is the total amount of capital you are looking to raise?-- if <$5M, then it might make sense to target a friends & family round. However, the more investors you have in the mix, the more complex potentially your investor relations / comms will be.
2. Investor Quality / Risk Prevention: Are the friends and family accredited investors / understand the risk? Hopefully, if everyone is aligned and understands pros / cons-- then hopefully you won't burn any bridges if things don't go as you hope.