An early funding round where founders raise small amounts from people in their personal network before seeking outside investors.
A friends and family round is an informal fundraising round, typically the earliest, where founders raise money from people who know and trust them personally — family members, close friends, or former colleagues. The amounts are usually small ($25,000–$250,000 total) and investors are making a bet on the person as much as on the business.
The informality of these rounds creates legal and personal risks that founders often underestimate. If someone gives you money expecting equity and you don't document it properly, you either have undocumented equity obligations hanging over your cap table or a family member who feels cheated. If you take money as a "gift" but the person has a different mental model, you have a relationship problem and potentially a legal one.
Best practice: treat every dollar you take from family and friends like any other investment. Use a SAFE or a simple loan agreement, be crystal clear about the risk (the money may be lost entirely), get the agreement signed, and maintain records. The three or four hours it takes to document properly is worth it to preserve both relationships and clean corporate records.