Beauty Brand Founders Discuss The Tricky Task Of Asking Friends And Family For Money
In this edition of Beauty Independent’s ongoing series posing questions to beauty entrepreneurs, we ask a dozen brand founders and executives: Have you raised a friends and family round? If so, what key strategies helped you raise the round?
- Britta Chatterjee Co-Founder, Odele
We did include family in our fundraising round. It’s a hard balance to mix friends, family and money. Two key things helped us: 1.) We set a minimum contribution amount to qualify the level of investment needed. When talking to friends and family, this gives both you and them a way out of the conversation if the needs of the business and the available resources of the potential friend/family member are not aligned.
2.) We dealt with family the same way we dealt with the PE firms and investors: giving them the same level of professionalism, detail, full assessment of risks and due diligence that any sophisticated investor requires, if not more. At the end of the day, it’s not just the business relationship, but a personal relationship that could be at stake if expectations are not appropriately managed from the beginning.
- Allison Moss Founder and CEO, Type:A
1.) Get free legal advice. The first thing we did was ask around to friends who had worked at startups and spoke to a few attorneys. They write up and facilitate hundreds of these deals, and can help educate you on what structure or offering might be most common in your category or in the market at that moment. This helped us figure out what we were offering and with what terms (e.g., we ended up offering a convertible note). If you’re evaluating legal options, the upfront conversations don’t cost anything, are very informative, and also help you figure out who to hire to get the paperwork done (because it’s a lot, and you do need an attorney).
2.) Be humble and grateful. We made a list of everyone we felt may have the means and the desire to support us. You’ll be surprised. Some who you wouldn’t expect to have the money or invest much will give a lot, and others who likely have the means will pass or invest a little. It’s a tough ask, and one that I didn’t take lightly. For someone I know to give me their hard-earned money for such a risky investment as an early-stage startup is a lot, and I approached everyone coming from a place of gratitude and acceptance that saying no is totally OK. When people were generous enough to say yes, I was both humbled and determined not to let them down.
3.) Don’t go to everyone right away. Be strategic and land your first investor, then you can go to others and say, "We’re xx% subscribed," and speak to the # or % that show strong interest. People like to know someone who came before them feels it’s a good investment. There’s a certain amount of trust there.
- Stacia Guzzo CEO, SmartyPits
We closed our friends and family round successfully raising $500,000. A few key tips I can give would be: 1). Be authentic. Your friends and family are the ones who have seen you build your brand from the very beginning, and they will be investing in you more than anything else. Be the person they've seen from the very beginning—and that you've also become an accomplished, capable CEO in the process of building your business.
2). Help educate them. Many friends and family have never invested before, and so you need to be clear about why you need the money, what the investment process looks like, how you will use it, and what the business will look like as a result of the cash infusion. A good deck and a thorough phone call can make a world of difference.
3). Be persistent. It took many emails, reminders, and follow-ups to secure our round. Often, people are busy or need time to talk to financial planners. Don't take silence personally and, instead, just continue to gently press for an answer until they let you know one way or another.
- Danielle Gronich Co-Founder, CLEARstem Skincare
I think raising money from friends and family is very dangerous. That scenario gives me anxiety. Every investment book I have ever read has fiercely cautioned against mixing friendship or family with money. Thanksgiving is a bit tense if you owe money to people at the table, even worse if you lost their money and have no clear path to repay them. Imagine wanting to take a much-needed vacation, but you still owe your mom ten grand. Personally, that route just wasn’t an option for me, but, hey, every family dynamic is different!
What we did instead: We started by solving a problem (make a skincare line that is anti-aging and anti-acne with no toxins), had a solid proof of concept (results at San Diego Acne Clinic were incredible), demonstrated market potential (went on Amazon and blew up), got more feedback from our community that they wanted more. Scaling happens somewhat naturally if your product solves problems and you have good messaging. Just be sure you don’t underprice yourself out of growth: margins need room for marketing budget and room for error as you learn.
- LAUREN NAPIER Founder, Lauren Napier Beauty
This is one of my favorite topics to discuss. I launched with a tax refund and an American Express card. Today, we have retail locations around the world. I am bootstrapping personified! As we continue to grow and I have a better understanding of business, funding and even raising capital, I have found that there are real-world implications when it comes to socioeconomic disparities, implicit bias and add the wage gap. My friends and family are, shall we say, a bit risk averse.
So, I had to bootstrap! According to Forbes, Black women are the fastest-growing group of entrepreneurs in America and, as consumers, Black women spend nine times more on skincare and beauty products than our non-Black counterparts. When it comes to funding, less than 50 Black women have received over $1 million in VC funding. That is less than 2% of the billions of dollars in capital flowing out there. Bottom line is, it’s time for change.
- BEN SMITH Founder, Disco
I made a Google sheet with individuals that might be interested or capable—ideally both—of writing angel investment checks and went down the list contacting them one by one. My list is comprised of people within my first degree network and beyond. To chat with the folks I didn’t know, I often asked multiple people to introduce me, so I had more than one reference.
- Ozohu Adoh Founder, Epara
Most of our funding has come from family and friends. In fundraising, the key is to have the right expectations. Know your stuff so that you can elaborate on any unclear areas for the potential investors.
- Renae Moomjian Founder, Niplips
We did raise a friends and family round. I think what was helpful is that we shared with them right from the beginning our vision and all the small successes we’ve had along the way. Prior to investing, many of them said, “Hey, if you’re looking for money, I’d be interested.” When we finally needed to do a small round, it was relatively easy and fast to bring in the investment. Also, when we asked for the investment, we were very clear with them on how the money would be used and what their percent interest would be.
- Heather D'Angelo Founder, Carta
I was very lucky to have financial support from my parents and in-laws to help launch. First, I let them know how serious I was about being a perfumer, but this was already evident to them since I had spent four years prior to launching totally immersed in learning the ins and outs of the craft. By the time I was ready to launch my perfume, perfuming had already become a very expensive hobby.
In addition to reiterating my commitment to perfuming, I also provided extensive market research about the indie perfume industry, a totally fleshed out cost-of-goods worksheet, and a clear business plan that included my projected profit margins and expectations for growth. All of these things helped my family to see that I wasn't just blindly jumping into a strange new industry. It's important to show your family that you've really done your homework.
- ROSE-ANN REYNOLDS Founder, Faraç Beauty
I used my own funds to launch my company to where it is today. Although this round would have been helpful, I didn't think to ask for help from friends and family during my initial stage. Maybe I will in the future.
- Helena Zaludova Founder and CEO, Hyascent
I went into this financially solo, working full-time in real estate and using my own savings. I considered raising money along the way, but there was just no time to even think about what that would look like! Honestly, if I knew how much money and time this would take at the outset, I may not have been brave enough to start, but now we are here, and I wouldn’t have it any other way.
- JULISSA PRADO Founder and CEO, Rizos Curls
We are 100% self-funded. I poured my life savings into launching this company, along with my brother who is a co-founder. We both worked full-time jobs at Fortune 500 companies and saved for over four years to be able to raise the capital we needed to launch.
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