# Friends and family money

> The same securities law as any round: Rule 506(b), accredited and non-accredited investors, and the paperwork that keeps the cap table clean.

Source: https://lopifi.com/learn/ways-to-raise-startup-capital/friends-and-family-round
Part of: Lopifi — US GAAP books on autopilot, checked by a CPA (https://lopifi.com)

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**Can I raise money from friends and family, and what are the rules?** The same securities law as any round: Rule 506(b), accredited and non-accredited investors, and the paperwork that keeps the cap table clean.

Money from friends and family is still a sale of securities. A SAFE sold to a relative needs an exemption like any other — usually [Rule 506(b)](https://lopifi.com/md/glossary/rule-506-b) — and a relative who is not an [accredited investor](https://lopifi.com/md/glossary/accredited-investor) changes the offering: Rule 506(b) allows at most 35 non-accredited purchasers in any 90 days, each sophisticated enough to judge the investment, and they must receive disclosure the accredited investors need not.

> “no more than, or the issuer reasonably believes that there are no more than, 35 purchasers of securities from the issuer”

— [17 CFR §230.506(b)(2)(i)](https://www.law.cornell.edu/cfr/text/17/230.506), Rule 506(b): unlimited accredited investors, at most 35 others, no general solicitation

> “within 15 days after the first sale of securities in the offering”

— [SEC, Private placements — Rule 506(b)](https://www.sec.gov/resources-small-businesses/exempt-offerings/private-placements-rule-506b), The SEC's plain-English page on Rule 506(b), Form D and state notice filings

**Friends and family**
- Pro: Fast, and on founder-friendly terms
- Pro: Can use the same standard SAFE as anyone else
- Con: Non-accredited investors bring disclosure obligations under Rule 506(b)
- Con: Relationships carry the loss if the company fails
- Con: Informal terms ('we'll sort out the shares later') are a cap table problem later
- Best for: The very first money, from people who would invest in the founder anyway

**Wrong:** "My uncle sent $25,000; we'll give him some shares at the Series A."

**Right:** A standard SAFE, an accredited-investor questionnaire, Form D within 15 days of the first sale.

The paperwork is the same whoever the investor is; only the exemption's conditions change.

## Where this page's rules come from

- [17 CFR §230.506(b)(2)(i)](https://www.law.cornell.edu/cfr/text/17/230.506) — Rule 506(b): unlimited accredited investors, at most 35 others, no general solicitation (sec)
- [SEC, Private placements — Rule 506(b)](https://www.sec.gov/resources-small-businesses/exempt-offerings/private-placements-rule-506b) — The SEC's plain-English page on Rule 506(b), Form D and state notice filings (sec)
- [17 CFR §230.501(e)(1)(iv)](https://www.law.cornell.edu/cfr/text/17/230.501) — Accredited investors are left out of Rule 506(b)'s count of 35 (sec)

- **Track:** [Cap tables & raising](https://lopifi.com/md/learn/equity)
- **Part of:** [Ways to raise: SAFEs, notes, priced rounds, debt and grants](https://lopifi.com/md/learn/ways-to-raise-startup-capital) — 3 min
- **Terms taught:** [Accredited investor](https://lopifi.com/md/glossary/accredited-investor), [Rule 506(b)](https://lopifi.com/md/glossary/rule-506-b)
- **Previous:** [SBIR and non-dilutive grants](https://lopifi.com/md/learn/ways-to-raise-startup-capital/sbir-and-non-dilutive-grants)
- **Next:** [SAFE conversion and dilution, worked end to end, Cap table · Lesson 4](https://lopifi.com/md/learn/safe-conversion-and-dilution-math)
- **The course:** https://lopifi.com/md/learn