Family, Friends, and Fools – The Famous 3F’s that Feed Hungry Start-Ups
“The greatest investment we can ever make is to invest our life in the life of someone else.” – Scott Lee
Who are They?
Family, Friends and Fools are typically the first three people to take the leap of faith and invest in start-up companies based on their relationship with the entrepreneur behind the new company or idea. The 3F’s will typically invest in a start-up company regardless of its viability, and will even go further than the standard investment by risking personal assets such as cars or real-estate.
3F’s Effect on the Entrepreneur
An investment from the 3F’s can create a positive drive increasing the determination and effort of the entrepreneur, or could create a relaxed feeling with less formality. Entrepreneurs who accept investment from the 3F’s should put a focus on their personal relationships and the need to keep the people in their circle from going under both financially and emotionally. However, entrepreneurs often accept investment from their circle of family and friends as a gift rather than an investment and use their relationships to have fun and show off their results.
How do the 3F’s View the Entrepreneur?
Family, Friends and Fools mean well but often have varying measures of judgment towards start-ups. Some will want to blindly help the people in their circle, while others will push harder because they have invested their personal assets. Nonetheless, investing blindly or diligently may create strains on relationships between the investor and the entrepreneur based on their approaches. Thomas Koulopoulos, founder of Delphi Group, told Inc.com, “Taking money from family ends up being a problem more so if you’re successful than if you’re a failure because if you fail, family will forgive you. Overtime you’ll be able to patch things up; but if you succeed, the reality is that they’ll be there for the duration. And that’s a tough thing to do.”
Just Can’t Cut It Anymore
In a world where we are spending more daily than we earn, our investment into IRAs, Pensions, Home Equity, and 401Ks have all the money locked up keeping the 3F’s from investing in start-up companies with entrepreneurs they know. If the 3F’s can’t invest in start-ups and Venture Capitalists won’t invest in start-ups, then pre-seed capital doesn’t happen. Even Angel Investors won’t touch companies who have had no pre-seed capital because of the extremely high risk and lack of assets and collateral.