Welcome! This is the first in a series of articles about “New Ways To Fund Your Projects” in which we’ll discuss:

 1. The Three Fs – Friends, Family, & Fools (3F)
2. Crowdfunding
3. ICOs
4. Angels, Seed Capital, & Business Incubators
5. Grants and Subsidies

We hope you enjoy this intriguing series, and this first article:

As an entrepreneur, if you’re looking for a seed fund, your best chances for an initial investment into your endeavor may be from one or more of these three sources: Friends, Family and Fools. It is known as Friends, Family and Fools (3F) because in many instances, it’s friends and family that help fund startups. The term fools that’s used isn’t a very nice one, but it refers to the fact that such investors have just invested in a business at such an early stage, with all the risks involved, and such early stage businesses have a high potential for failure.

The number of small and medium-sized businesses turning to friends and family for cash was six times as high in 2009 as it was in 2008, according to a survey by Close Invoice Finance.

According to statistics on the Fundable crowdfunding site, friends and family are the major funding source for all entrepreneurs, investing over $60 billion into new ventures on 2014. The average amount per startup, in the form of a convertible loan, rather than an equity investment was $23,000.

On the contrary, family and friends might not be the best to lend money to or borrow money from because the loan has no end date and sometimes no interest rate. These are not really loans in the true sense, as they tend to have no fixed repayment date and often exclude an interest rate on the loan. This leaves both parties without any set expectations. It can also be difficult to request repayment of such loans. The lender cares about the borrower and doesn’t want the borrower to feel awkward. Family events can also become very uncomfortable since the borrower may feel a need to avoid the lender for fear of discussing the situation. More so, you could lose your money and your relationship altogether.

Fools on the other hand, do not recognize the risk in the venture. Fools haven’t known you most of your life and have very little to go on to even know whether or not you’re a career risk taker.

Now note: the point of this article IS NOT to say to go and find “fools” to give you money, or to pinpoint people as fools in your mind and try to take advantage of them. The article is simply based on the 3F phrase, and designed to help you find early seed fund sources for a legitimate business venture. The term “fools” is to raise awareness that those who invest in early investments may not be aware of the risks involved – you should make them aware. We suggest honesty and transparency concerning your venture, finances, your plans, etc, as well as putting in the effort to make sure your venture is a success and you can pay back your lenders.

How To Source Capital From Fools

When attracting capital from fools you should be passionate and confident about your idea. Convince them on how your idea could be a lucrative one, and even more so be likeable by exhibiting a certain level of respect (do the above with transparency and honesty). Always show that you’ve made some headway on the idea before approaching anyone for an investment. People like to see that someone is fanatically obsessed with creativity and ideas and takes pride in their work.

Be realistic about your capital needs by asking for funds which are just enough to build your venture. Moreover, do your homework. There are excellent resources for learning about the basics of how capital is raised and the legal stuff around it.

Downside Of Fools

The problem with fools is similar but different to the Friends and Family. Fools will not impose an eternal personal debt on you. However, if the venture fails, they too will suddenly consider that the money invested should now be withdrawn from the business as soon as possible, and cannot fathom the fact that the money has been spent and cannot be recovered.

Unfortunately, this habit seems to be the main way rather than the exception. Fools can likely withdraw their funds from you in the midst of a startup failure unless you end up breaking all communications with them, under unpleasant circumstances.

Whilst a Friends & Family investment could possibly turn into a debt for life, a Fool’s investment could likely create an enemy for life, because a fool will always want their funds recovered, and doesn’t have the same ties to you as a friend or family member.

Who Should You Take Investments From?
NOTE: You can use these potential investment sources as business feedback to make your idea and startup even more solid and structured, even if you don’t get immediate funding.

The first are professional investors, who make regular angel investments, as well as wealthy individuals who have invested in things that have brought them big cash losses before (they understand the potential risks), and who therefore will be fairly rational about your idea.

The second category is other entrepreneurs, especially those who have both failed and succeeded, as they know what it takes, they know that it’s challenging, and how to appropriately respond if the business is failing.

Another important point about investments is you should only take money from someone who can afford to lose it. Someone who simply can’t afford the failure can affect your conscience.

It’s worth realizing that with the recent onset of SEIS in the UK, investment by both professional investors and successful entrepreneurs is now much less risky than before.

There are about 300 million people trying to start about 150 million businesses worldwide. About one third will be launched. As ventures start, failure rates are about the same, equal numbers of active ventures, say about 120,000 probably fail each day. The Global Entrepreneurship Monitor is a great place to get comparative country entrepreneur statistics.

Felicis Ventures and First Round Capital are among the top 13 seed stage investors in Silicon Valley. Felicis, a fund started by former Googler Aydin Senkut, is a multi-stage fund that has seen out-of-proportion amounts of success in it’s short life. Their success story includes the Dollar Shave Club.

First Round Capital is considered by many to be the top seed stage fund in the valley, their success stories include: Uber and Warby Parker.

United Kingdom

The European Commission runs microfinance programmes (loans under €25,000) for self-employed people and businesses with fewer than 10 employees. European seed capital is available, but is typically limited to a 50% share. European SMEs can often benefit from the Eureka programme, which federates SMEs and research organizations, such as universities. Government programmes are often tied to political initiatives, for example greentrustwind.co.uk, a means by which the UK places subsidies in the green sector, or the Energy Saving Trust, designed to draw attention to energy conservation.

United States

Through the fourth quarter of 2011, venture capitalists invested some $29.1 billion in 3,752 ventures in the U.S. according to a report by the National Venture Capital Association. The numbers for all of 2010 were $23.4 billion in 3,496 ventures.

According to a report by Dow Jones Venture Source, venture capital funding fell to $6.4 billion in the USA in the first quarter of 2013, an 11.8% drop from the first quarter of 2012, and a 20.8% decline from 2011. Venture firms have added $4.2 billion into their funds this year, down from $6.3 billion in the first quarter of 2013, but up from $2.6 billion in the fourth quarter of 2012.


Mexican Venture Capital firms have raised over US $355 million in 2013 and 2014 dedicated to Seed and Early Venture Capital funds. With the support of institutions and private funds the Venture Capital industry in Mexico is a fast-growing sector in the country and is estimated to reach US $100 billion invested by 2018.


High-tech entrepreneurship and venture capital have grown well. Nowadays Israel has about 70 active venture capital funds and an additional 220 international funds which actively invest in Israel. In addition, as of 2010, Israel led the world in venture capital invested per capita. About two thirds of the funds invested were from foreign sources, and the rest domestic. High-tech goods and services account for 12.5 percent of Israel’s gross domestic product (GDP) and half of it’s industrial exports.


According to an article by techinasia.com, analyzing the industry in China can be difficult, with two respected sources reporting that China had done 403 venture capital deals, and the other 1,555 venture capital deals, in 2015. The article concedes that there were actually 4,489 venture capital deals made in the country in 2015, totalling $60.5 billion dollars. 2,383 of those deals were for initial seed investments.


Singapore is a tiny nation build around innovation and quality service. In this article by the Singapore government, it reports that the National Research Foundation (NRF) had dedicated S$10 million on a matching basis, to venture capital firms that invest in Singapore-based, high tech companies. Additionally, the Singapore government announced in 2013 that the Singapore government would inject S$50 million to energize the early stage investment ecosystem.


This downloadable report to the World Bank on the Malaysian Venture Capital Industry, had this to say:

At the end of 2003, the amount of VC under management in Malaysia was $557.4 million, and continued to increase to $596.3 million by the end of 2004.  Of these funds, the Malaysian government provided 42.5 percent.  The total investment (including divestment activities) was $278.4 million at the end of 2004, with $233.6 million from local sources and $44.8 million from foreign sources.  At the end of 2004, there were 38 venture capital companies/funds operating in Malaysia, venture capital fund management companies totaled 34, and a total investment portfolio of 34 firms.  These numbers have continued to increase in Malaysia, in part due to the government’s emphasis on expanding the industry.

According to this article, from dealstreetasia.com, the VC – PE (Venture Capital and Private Equity) had $1.74 billion committed funds at the end of 2015. Early stage investments totalled MYR320 million ($77.8 million) in 2015. You can read more about the Malaysian industry from another source here.