Raising money from friends and family sounds easy until you realize that you could accidentally violate securities laws and turn your closest relationships into your biggest liabilities. Let’s break down how to raise capital legally, safely and smartly without wrecking your future.
Hi, I’m Tilden Moschetti, founder of Moschetti Syndication Law. I help syndicators, fund managers, and entrepreneurs raise capital the right way, especially when it involves the people closest to you. Today, we’re talking about how to unlock the huge opportunity of friends and family fundraising without stepping into legal quicksand.
Raising capital from friends and family is how thousands of businesses and funds get started. It’s where a lot of first-time entrepreneurs and syndicators begin. But just because it feels informal doesn’t mean the rules go away. In fact, friends and family raises can be some of the most legally dangerous ones if you don’t handle them properly.
The moment you take someone else’s money for an investment—even your parents, your college roommate, your dentist—you’re selling a security. That means securities laws apply at the federal and state level, just like you are raising from complete strangers. Ignoring that because it’s just family is a mistake that has cost people their businesses, their reputations, and their personal relationships.
Now, the good news is that Regulation D and specifically Rule 506(b) gives you a clear legal path to raise money from your network. 506(b) allows you to raise privately from people you have pre-existing relationships with, including non-accredited investors, as long as they’re sophisticated enough to understand what risks there are.
That flexibility is huge for new funds and small businesses because many friends and family investors won’t meet formal accreditation standards. But here’s the catch: you must be extremely careful not to advertise it publicly. No Facebook posts, no Instagram blast, no email blast to a mailing list, no casual mentions at public events. Everything must happen one-on-one, privately, within your established network.
The SEC looks closely at whether you truly knew the investor before you offered them the deal and whether you gave them a full, fair disclosure of the risks involved. Full disclosure matters just as much with friends and family as it does with institutional investors. In fact, it may matter more, because when things go wrong—and sometimes they do, even with the best deals—emotions run high.
The last thing you want is a close friend or relative claiming that you didn’t explain the risks, or worse, accusing you of misleading them. And that’s why a professional Private Placement Memorandum, or PPM, is critical, even for small raises. It protects you by laying out the risks, conflicts, and terms clearly and formally.
Documentation is another piece that first-time fundraisers miss. Every investor should fill out a subscription agreement confirming that they understand the investment, accept the risks, and have made an independent decision. Even if you’re raising from your best friend since childhood, don’t skip the paperwork. It’s not about distrust. It’s about protecting both of you.
Handling friends and family raises the right way actually builds trust. It shows you take their investment, their money, and all of their trust seriously. It sets the tone for how you’re going to handle bigger raises later. It gives you peace of mind knowing that no matter what happens, you did everything right up front.
Friends and family can be your greatest asset when raising your first rounds of capital. They believe in you personally, but belief sometimes isn’t enough. You have to respect the law, respect the process, and respect the responsibility that you’re taking on with their money.
When you do that, you don’t just raise capital. You strengthen relationships that will support you across your entire career.
Raising money from friends and family is an incredible opportunity, but only if you treat it with the professionalism and seriousness it deserves. Protect yourself, protect your investors, and build the foundation for a lifetime of successful capital raising.
If you need help setting up your friends and family round the right way, reach out. I’m Tilden Moschetti. Thanks for watching, and let’s build something that lasts you.