In “friends and family” rounds, should you only raise capital from accredited investors? Why or why not?

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JASON LEMKIN

Let me suggest one simple rule: don’t take an investment from any investor where the amount is > 1%-2% of their net worth. If you do, it will be nothing but headaches.

They will stress about it. They will want to be over-involved in your business. They will drag out signing consents, etc. They will want to meet, talk, come by the office too often, have coffee, things you just won’t have time for.

You want investors that can afford to lose their check entirely, at least the first check in.

At a practical level, if you are starting a lemonade stand, mom and dad can fund you with less than 1%-2% of their net worth.

But in most startups, non-accredited investors should be out of this picture if for no other reason that it’s too much of their net worth. One small exception might be a bunch of $10k-$20k checks, but there, best case, you will end up with a lot of administrative headaches down the road with too many investors.

(This is in addition to the important legal issues here).

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Published on August 17, 2017
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