TLDR:
A friends and family round is the earliest form of startup funding, where the founder raises capital from their personal network — friends, family, and close contacts — before seeking institutional investors.
Best Practices for Friends and Family Rounds
Even though friends and family investments are informal in spirit, they should be formalized legally to protect both founders and investors. Investments should be documented as convertible notes or SAFEs (Simple Agreements for Future Equity) rather than informal handshakes, clearly specifying the investment amount, conversion terms, and cap. This documentation protects founders from disputes about ownership, provides investors with clear legal rights, and creates a clean record for future investors who will conduct due diligence on the cap table.