Friends and Family Raise and Crowdfunding | Tory Burch Foundation

It’s a common dilemma every business owner faces: you need financing. There are the obvious suspects, of course—banks, venture capitalists and private equity—but what if those aren’t right for you? For many startups, the answer lies in community funding. 

The concept is exactly as it sounds—leveraging your contacts and connections to secure capital. You’re likely already familiar with these types of raises, which include crowdfunding and friends-and-family raises. They may seem straightforward, but success depends on a shift in mindset: you need to cultivate relationships, not chase after checks. 

“I call it relationship-driven funding,” said Dora Rankin, business growth consultant and author of The Heart Sell: A Guide for Women Entrepreneurs Seeking Financial Freedom. “You need to have a strong community following, online and offline. People aren’t going to invest in your venture unless they trust it.” 

As part of our webinar series, Rankin shared her strategic playbook on everything from SAFE notes and how to approach new funders to talking points for outreach and the 30-second pitch. 

3 TYPES OF COMMUNITY-DRIVEN FUNDING

Community funding can be private or public. The first relies on your personal circle, friends and family who are willing to take a risk with you; the second is crowdfunding, where you invite a wide audience to support you, and can be either debt- or equity-based. 

“Don’t do them at the same time to raise money quickly,” Rankin cautioned. “Pick one, do it and move on.” 

Friends-and-Family Fundraising

This is great for the earliest stages of fundraising, when you’re in concept or product-development mode. Unlike the other funding paths, there’s no need to establish a formal valuation; the most you can do is reference the competition. “I actually don’t want you to be evaluating,” Rankin said. “Be honest with your friends and family.” 

Debt Crowdfunding

Debt crowdfunding is structured like a loan, but the money comes from a large pool of individuals. Investors don’t need to be accredited, and there’s no gatekeeping institution involved. You’re able to maintain complete control of the business as you pay them back on a fixed schedule—with interest. 

Available on platforms such as Honeycomb Credit—and SEC-regulated for built-in protection—debt crowdfunding is ideal for founders with hyper-local companies, e.g., a food truck, a Pilates studio or a service company—looking for new equipment, inventory, additional locations or simply more working capital. In other words: You’re already established and have a built-in following. “This isn’t proof-of-concept,” Rankin explained. “You have revenue, even if it’s a negative cash flow.” Average raises range from $25,000 to $500,000.

Equity Crowdfunding

In need of more cash? And are you willing to give up equity, usually five to 25 percent? Consider equity crowdfunding, which can net anywhere from $500,000 up to the SEC-regulated cap of $5 million. Again, this targets the everyday investor who can contribute smaller amounts—it will add up thanks to a community’s reach. 

This is a good fit for founders focused on scaling—whether via infrastructure, market entry or new product categories—and for high-growth sectors such as technology and retail. “I’ve seen a lot of success with breweries,” added Rankin of another case in point, “not so much your service industries.” For those interested, available tools include StartEngine and Wefunder. 

PROTECTING YOUR INVESTORS

The people who believe enough to invest in your business need to know their interests will be protected. As the founder, you’ll also need to understand what their role is in your company, so you can prepare your company and show potential investors that you understand their position.

Special Purpose Vehicle

A group of investors who participate in crowdfunding are typically organized under a special purpose vehicle (SPV), or a single legal entity that represents them on the company’s capitalization table. Usually structured as a limited liability company (LLC) or limited partnership (LP), the SVP protects investors’ assets and makes it easier for a large group of small investors to conduct transactions with the business. SVPs may be used in debt or equity crowdfunding. Make sure you understand the regulations, associated fees and reporting obligations of an SVP before launching your campaign. 

SAFE Notes

Personal dynamics can make the friends and family raise route a minefield, with emotions, expectations and relationships at stake—which is why Rankin recommended the use of SAFE notes to protect both you and your investors. 

Short for Simple Agreement for Future Equity, it’s a contract that lets your friends and family give you money now in exchange for equity later—typically $10,000 to $15,000 for 10 to 15 percent—at an agreed-upon date. 

There are two types: a standard SAFE converts only when you raise more money or sell the business while a custom one includes a revenue trigger. If you don’t plan on another round, go with the latter—investors are paid when you hit a certain revenue. The alternative is a promissory note, a legal agreement for a loan instead of shares. 

Whichever you decide, you need to get an attorney involved. “Do your due diligence,” Rankin stressed. “Don’t rely on an incubator, accelerator or an online template, like LegalZoom, to do it for you.”

Don’t ask for money until you have a clear understanding of your revenue and business model.

THE HEART SELL CAMPAIGN: YOUR FUNDRAISING ROADMAP.

Now that we’ve covered the what, let’s move on to the how. Rankin named her approach the Heart Sell, which maps out how to proactively cultivate the relationships needed for a winning raise. 

Build the List

• Audit your audience. Who in your network would be willing and able to invest? 

• List your ideal investors. Think about whose values and interests align with yours. 

• Identify the individuals who can connect you to the above: say, an advisor or a community leader. 

• Determine which organizations and platforms your dream investors are involved in—e.g., accelerators, industry panels and networking events. Get involved. 

A successful raise depends on two things: targeting the right people and having enough of them. “If you want to raise $50,000 and only have five people,” she explained, “even if they’re a quality audience, you’re going to need a bigger list.”

Begin the Outreach

Rankin stressed that your initial outreach must be personal—no LinkedIn spam, no mass social media posts. Always research prospective investors so you can better tailor the message. 

The goal here isn’t to pitch; it’s to open a conversation. Make sure to connect over something you have in common and include a compliment. The message should be about them first, you second. 

Examples: 

• I saw your recent post about __________ and I appreciate your perspective because __________. 
• I noticed we run in some of the same circles, and I’ve always admired your commitment to __________. 

End with a clear ask to meet and be patient. “Then follow up and follow up,” Rankin said. “Persistence pays.” 

Have the Conversation

Meeting set? It’s time to explore whether you’re a good fit. “You never want to pitch before you know they’re 100 percent bought in,” said Rankin, who outlined talking points. 

Open with small talk (about them, their family) to build rapport—keep it brief, no more than 30 seconds. Then set the agenda and share what you’d like to discuss so expectations are aligned, and establish your goal so the conversation is deliberate. For example: “I’d love to share the vision for my next phase, and see if you’d like to be involved or know someone who would align with my mission.” 

Prep the Pitch

Start by asking questions about them and their investing interests. “You will be the rarity,” said Rankin, “and they’ll see that you’re sincere.” 

Then segue to yourself, not your product. Share your story—why you? why now?—so they understand you better and the experiences that led you to this point. 

Summarize the key points so far to set up the ask—what Rankin called “the bridge to the pitch.” 

Examples: 

• It sounds like we care deeply about __________. 
• Since you mentioned that __________ is important to you, I’d love to show you how our funding round supports that.

Finally: Make the Pitch

Less is more—Rankin recommended keeping it under 30 seconds and focusing on just the basics.

What are you doing and how will it support their goals, interests and values? Why is it a strategic move for them? How do you both align? Don’t forget to tell them how much you’re raising and by when.

If they’re interested, they’ll ask questions—which is what you want. As Rankin explained, “they’ll ask about what’s important to them versus you sharing all the things they may not really care about.” 

Pro Tip: Be transparent about why you’re raising money. There’s more flexibility when approaching friends and family, but crowdfunding requires a breakdown of how the funds will be used—and how they will drive growth. “Don’t ask for money,” Rankin said, “until you have a clear understanding of your revenue and business model.”