November 30, 1999 in Uncategorized

Acronym Soup – F

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Friends and Family (and Fools) – after credit cards, this is usually the second source of financing for a startup.  They approach their friends and family to support them.  Although this is common and an easy source of money, it is dangerous.  Make sure your F&F really can afford to make this investment.  Tell them there is a VERY GOOD chance that they will lose ALL their money and see how they react.  If they are nervous, don’t take their money.  Remember, your startup will only last a few years, you still have to eat Thanksgiving turkey with these people for many years.  It can be a real uncomfortable feast if you lost their life savings.

Founders – the original group of people that came up with the concept and contributed sweat equity to get it off the ground.  Sometimes there are differing opinions down the road about who were the actual founders of the company.  Usually it is just a title and ego thing, but sometimes there are special financial arrangements for founders so make sure you get it clear up front.

Finder’s Fee – Many startups are approached by brokers that want to help them raise money.  They will charge a small finder’s fee (usually 5-8% of the money raised).  We discourage entrepreneurs from using brokers to raise venture capital.  VCs don’t like, it looks desperate, and you don’t want someone else pitching your deal on your behalf.

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