A “friends and family” financing refers to the very first checks that a startup takes at or near launch; often anywhere from under $100K to a few million dollars. Not every startup raises an F&F round, but a sizable portion do.

The name “friends and family” stems from the fact that it’s usually funded by people personally close to the founders, who are likely willing to take on much more risk (fund earlier) than an arms-length angel investor or VC. A key issue is that friends and family, not being professionals, are not well situated to place a concrete valuation on the company in the way that an angel investor or VC can.

While there’s no universal standard for how to structure these rounds, there are a few guidelines that the vast majority of our clients follow.

A.    It should be a simple template that is not heavily negotiated or customized, and almost always a convertible instrument like a SAFE or a convertible note.

Because the size of the round is so small, it does not make sense at all to spend a lot of lawyer time heavily negotiating a F&F round. Any emerging companies law firm will have ready-made templates to share, keeping the cost of legal fees minimal.

Almost all F&F rounds that we see are SAFEs (in a minority of cases convertible notes). Those SAFEs often deviate from the “classic” publicly available SAFE templates because of how extremely early-stage the funding is.

B.    It usually will not have a valuation cap but will have a discount on a future financing. Importantly, this discount will be not just on a future equity round, but on a future convertible round.

The “classic” SAFEs that are most in circulation will either have a valuation cap or a discount on a future equity round (or both). This is often insufficient for an F&F round because a future equity round is likely years away, and a small discount (20-30%) will not appropriately reward the F&F investors for the risk they’ve taken.

For this reason we recommend including a discount on a future convertible round’s valuation cap. In most cases your F&F round will be followed by another SAFE (or convertible note) round with a valuation cap. An F&F round template should give your earlier F&F investors a discount on that valuation.

A quick example: You’re raising a $250K F&F round in January 2026. You plan to raise a pre-seed SAFE round of a few million in 2027, but you (obviously) don’t know the valuation cap that round will have yet. Your F&F structure should be a SAFE with a discount on the future SAFE round’s valuation cap, such as 20%. Thus if your 2027 pre-seed investors fund a SAFE with a $20 million post-money cap, your 2026 F&F investors will have their F&F SAFEs amended to receive a $16 million post-money cap, rewarding them for the extra early risk they took on.

C.   If you can, ensure that all of your “friends and family” qualify as accredited investors.

The reasons for this go well beyond the scope of this post, but taking funding from only friends and family who qualify as accredited investors will make your life a lot easier as a company in the long run. If you have a few non-accreds that you’d like to include on your cap table, that’s a discussion that must be had with an attorney to ensure it’s done safely and doesn’t cause future problems for the company.