Terms for friends and family equity

searcher profile

January 15, 2023

by a searcher from University of Illinois at Urbana-Champaign in Chicago, IL, USA

I'm curious understand how the search community typically handles terms for friends and family for equity investments in search deals. Do most searchers offer the same terms they would offer professional investors or terms that are more favorable to the searcher? Thanks in advance!

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commentor profile
Reply by a professional
from The Johns Hopkins University in Basking Ridge, NJ 07920, USA
You have to balance the efficiencies achieved from F&F money against the terms that would typically be requested by a more "professional" investor. These are not always monetary. By way of example, F&F may be less inclined to push on entity structure (LLC v. C-Corp.); equity vehicle (convertible note, SAFE, pure equity); governance ("professional" lead investors may require a board seat. This allows the company to focus on other matters. How these are balanced is very deal specific, but remember that "professional" investors will often use the F&F round to inform the terms of their investments.
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Reply by a searcher
from Northwestern University in Deerfield, IL, USA
I'm looking to get the most favorable terms regardless of the type of investor. Now I realize that friends and family are most likely to give me favorable terms.

The one thing that I, personally, don't want to do is to only offer terms that are more favorable to me to friends and family who have less experience with these types of investments. For this group, I would explain to them the different terms from ones that are more favorable to me to ones typically offered to professional investors.

This is a good question and I'm interested in seeing what others have to say as well.
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