How to Ask Friends and Family for Money Without It Getting Awkward

If you want to raise money from friends and family, then know this: Your job isn't just to pitch them a great business. It's to lower their risk.

That's advice from Mike Maples Jr., one of the most celebrated investors in Silicon Valley and coauthor of a book about why startups succeed called Pattern Breakers . He's a cofounder of Floodgate, a leading pre-seed and seed-stage fund whose investments included Twitter (long before it was known as X), Twitch, and Lyft. And although he's not investing in mom-and-pop shops, he says that the fundamentals of fundraising remain the same. Here, Maples takes you into the mind of any investor — even if it's your dad or sister — and how to make them comfortable.

Related: The Right Way to Ask Someone for a Million Dollars, According to a Fundraiser Who Does It For a Living

Let's imagine someone can't afford to open a bakery on their own, but they don't know how to ask loved ones for money. What's their first step?

Put yourself in your investor's world for a second. All investing must answer a specific question: How do I get paid for the risk I take? Whenever I take more risk, I have to get paid more for that risk. Because why would I take more risk to get paid the same amount of money?

The startups that I invest in need a lot more money up front. Their chances to become the next Twitter are small, but we made 600 times our money on Twitter. I can justify taking that high risk by potentially getting a high asymmetric return on the back end.

Now let's take a bakery. Is there a world where I can make 600 times my money? Probably not. Therefore, I can't afford a high chance of you going out of business, because I'm not getting paid enough for the risk I'm taking.

So if I can't justify taking a lot of risk, how do we reduce risk ? One way is to be profitable sooner. Another is to have the investment be a combination of equity and a loan. As an investor, that means I get paid two ways: as a shareholder if you become the next big bakery franchise, and with the interest on the loan.

Related: 5 Phrases That Kill Your Chances of Receiving Funding

So this isn't about pitching your business, per se. It's about understanding your investors' risk calculation.

Right. And you have to respect that. A lot of people think they need to raise money because they want money. But the investor doesn't care about your desire for money. The investor cares about getting paid for the risk they take with their money.

When you're trying to get a return, your business can fundamentally be one of two things. It can be growth-first, which is what I invest in. Or it can be profit-first. It can't be somewhere in between. Too many people conflate the two.

So a growth-first bakery might pour all of its money into marketing and selling cupcakes at a loss, because they value user growth over profits . What would a profit-first model look like?

Profit-first means my first customer should be profitable. And what do I really need to get one customer? Do I need a bakery, or can I bake this stuff in my home kitchen, or can I rent a school cafeteria in the off-hours? Once I have one profitable customer, how do I get 10? Then how do I get 100? Then I layer on business structure to enable that. A good business is the accumulation of profitable customers over time. And if that takes a long time, or is really risky, then it's not a good investment for your family or acquaintances.

Related: 6 Effective Funding Strategies for Startups