Quite a bit of discussion took place in the comments and offline following my post on accredited investors, especially as it relates to friends and family financing. These investors will typically be “easier” to convince to support and finance your idea, but at the same time they might not qualify for the accreditation as defined by the law.
So what can you do as a young entrepreneur/team needing some cash? First order: can your savings and credit cards get you anywhere meaningful? Second: in order to avoid being stuck between a rock and a hard place, a loan that will be re-imbursed as opposed to converting into the next round of equity financing might be a temporary solution. Unfortunately for the unaccredited lender, he/she will not be able to benefit from that early support through the perks angels typically get: discount to Series A, warrant coverage, etc. because only accredited investors can acquire equity. And once again, you want to make sure that this is a solution that works legally (for the nth time – I am no lawyer).
Coming back to this set of rules and regulations: they have put in place ages ago to protect investors, and make sure they do not end up involved in highly risky illiquid investments like… financing startups. Not only is this exercise not for the faint of heart – because of the ups and downs startups go through during the initial 2 to 3 years – but probabilistically most of the investments angels will make will end up hitting the wall.
Of course, everyone’s goal is to beat the odds, it just does not always happen. Quite the contrary.