Getting Funded by Friends and Family

Cofounder
Blue Chalk Cafe and Left at Albuquerque restaurants

Duke Rohlen and his high school friend and business partner Maurice Werdegar started the Blue Chalk Cafe in 1993 with $600,000 from friends and family. He now operates a $22 million business that includes the Blue Chalk Cafe and seven Left at Albuquerque restaurants.

Issue: Raising money from family and friends.

Problem: It's awkward to approach people you know about investing money, and difficult to convince them to take you and your business idea seriously.

Reality: While it's difficult mentally to ask friends and family for money, it's often quicker and easier to raise money from private investors than it is to get a business loan — and you can get more funding at once. Best of all, once you raise money from family and friends and establish a track record, soliciting a second round of funding should be relatively easy.

The right way to get the job done: Rohlen and Werdegar (then 24 and 27, respectively) started fundraising by sending letters to, and then phoning, every single person they knew who they thought might have $12,500 to invest in their company. "We priced it so that people could afford to have a token investment," says Rohlen. "If they lost, it was still fun to have been involved in owning a restaurant."

Even with their reasonable pricing strategy, Rohlen says the pair had two issues working against them: "First, why would anyone want to invest in a restaurant — they have a high failure rate — and second, why should they give money to novices?" To combat potential investors' fears, the pair touted their "semi-credible pasts," wrote a comprehensive business plan, and took a long look at the market. Their findings showed that there were no new, hip restaurants for the emerging Silicon Valley crowd.

"What really got us over the top, however, was an open house," says Rohlen. "We invited all the potential investors to the Blue Chalk Cafe space and served bagels and orange juice, so people could see the charm of the building. People liked that. It was tangible."

Rohlen's and Werdegar's efforts raised $600,000, which helped get their first restaurant, Blue Chalk Cafe, up and running. Within a year, Blue Chalk was ringing up $3 million in annual sales and the pair was busy soliciting money for a second restaurant concept. The repeat performance netted them an easy $900,000.

What to watch out for: The pressure you'll feel once you take money from people you know. "When we were asking for money, we were young and a lot of our friends that we approached didn't have a lot of disposable income," says Rohlen. "Even $12,500 was a lot. It really motivates you to succeed when you think about losing a friend's or family member's investment."

— Susan Smith Hendrickson