Getting $50K total from family (uncle + two cousins). They don't care about terms, they just want to "help me out." One cousin literally said "just pay me back when you can."
Do I need formal legal docs or can I just keep it casual since it's family?
formal docs. 100%. my startup died and I had to tell my uncle he wasn't getting his $25K back. nearly broke the family. having a SAFE would've made it clear from the start that this was high-risk equity, not a loan.
Use a SAFE even for family. Reasons: (1) Sets clear expectations about risk, (2) Keeps your cap table clean for future investors, (3) Documents that this was an investment not a gift (tax implications), (4) Protects you from securities law issues.
$50K from 3 people is small enough that you're likely exempt from registration, but you still want proper accredited investor questionnaires or a Reg D safe harbor just to be safe.
give them a sweetheart deal though since they're taking on huge risk backing you before anyone else. low cap, maybe even a discount. my family got $2M cap when my seed was at $6M - they deserved it
Not gonna lie as far as I know, what cap should I give family? I have no idea what my company is worth right now lol
for friends and family round with no real company yet, $1-2M cap is common. they're basically betting on you as a person. if you raise a proper seed later at $5M+ they get a nice multiple on their trust in you
Don't overthink the cap for $50K. At a $2M cap they'd own 2.5% when converted. That's fair for family risk. More importantly, HAVE THE CONVERSATION with them. Explain: "This is high risk. You could lose all $50K. Is that okay?" Get it in writing that they understand. Worth more than any legal doc.
Had the conversation with all three. My uncle actually said "I know it might fail, I've lost more in the stock market." Going with $2M cap SAFE. Thanks for talking me out of doing it casually - would've been a mess later.
Coming back to this thread because I see a lot of founders make this mistake. YES use a SAFE, but also make sure you actually understand what you're signing your family up for.
A SAFE at a $2M cap means if you raise at $10M, your uncle's $10K becomes worth $50K on paper. But it also means if you never raise again and the company just... exists... that SAFE might never convert. It's not like a loan where they get their money back.
Make sure your family understands this is equity, not debt. Many families expect to "get their money back" eventually.
Update from someone who found this thread last year - I took the advice and used SAFEs with my family round ($75K from parents and an aunt). Fast forward to now, we just closed a seed round at $8M valuation. My parents' $30K investment is now worth about $120K in equity.
Having proper docs made due diligence SO much smoother. The VC's lawyers didn't even blink at our cap table. If I had done handshake deals, it would have been a nightmare to clean up.
Just consulted with an attorney about my case. The initial consultation was free and they took it on contingency (no upfront cost, they take a percentage of the recovery). If your case has strong merits, many attorneys will work on contingency.
Before you file the LLC, check your state's annual report and franchise tax requirements. Some states (like California) charge $800/year just to exist. Delaware has a minimum $300 franchise tax.