To structure a friends and family round in the United States, start from Rule 506(b) of Regulation D: a company can raise an unlimited amount but may sell to no more than 35 non-accredited investors, and general solicitation or advertising is barred. That is almost always the exemption behind one. Most founders stay inside those limits without effort, because a friends and family round is a handful of people who already know them.
Founders rarely trip over the exemption. They trip over the paperwork and the pricing. Money arrives by bank transfer, terms differ per person because each conversation happened separately, and nobody files anything. Two years later a Series A diligence request turns that into a repricing exercise.
The exemption and what it costs you
Rule 506(b) has one hard trade in it. You may take money from people who are not accredited, up to 35 of them, but the moment a single non-accredited investor is in the round, the disclosure burden changes, and that is real paperwork for a company that may have no audited financials.
The alternative exemptions have their own edges. Rule 506(c) permits general solicitation and advertising, so you could post about the raise publicly, but every purchaser has to be accredited and the issuer has to take reasonable steps to verify that status rather than accept a checkbox.
For a round of five to fifteen people who already know you, 506(b) with accredited investors only is the cheapest path by a wide margin. It removes the disclosure package and the verification work in one move.
Accreditation, checked before the conversation
The definition is specific enough to check in advance, against the net worth and income thresholds the SEC publishes for accredited investor status.
Run that test against your list before you pitch anyone. A friend who clears it can be in the round with a signature and nothing else. A friend who does not clear it either stays out, or triggers the disclosure obligations for the whole offering. Deciding that after you have already promised someone a spot is how founders end up either breaking a promise or paying a lawyer to assemble a disclosure package for one of the smallest cheques in the round.
There is a second reason to check, and it has nothing to do with securities law. The threshold is a proxy for whether losing the money changes someone's life. If it would, the round should not include them, whatever the rules permit.
One instrument, one set of terms
Use a standard document unmodified and give every participant identical terms. The post-money SAFE is the default for pre-seed rounds in the US, and Y Combinator publishes three variants, a valuation cap with no discount, a discount with no valuation cap, and an uncapped MFN.
Pick one variant for the round and hold it. Mixing a capped SAFE for one friend and an uncapped MFN for another creates a cap table where the cheapest money converts on the best terms, and the MFN clause then pulls that best term across to everyone anyway. If someone asks for pro rata rights, note that the SAFE itself does not carry them: those rights live in a separate standardized side letter, which keeps the instrument clean and the request visible.
The number that decides everything is the valuation cap, because it sets the conversion price. Understanding how a valuation cap works and how it relates to pre-money valuation matters more here than in a priced round, since your friends are agreeing to a number they cannot benchmark.
The filing nobody remembers
Form D must be filed with the Commission within 15 days after the first sale of securities in the offering, online through the EDGAR system. The SEC dates the first sale from the day the first investor is irrevocably contractually committed to invest, which can come before any money moves and well before the round closes.
Getting EDGAR access takes its own time, since the company needs codes before it can file anything, so start that in parallel with the first conversation. Each state where an investor lives can also require its own blue sky notice filing and fee.
The conversation before the money moves
Say the loss case out loud, in plain words: this money can go to zero, there is no market to sell into, and the timeline to any outcome runs in years. Put it in writing too, because a text message saying the same thing is worth more than a memory of a conversation.
Set the amount yourself. A round of eight people writing one cheque each, at the same size, is easier to administer and easier to refuse than eight separate negotiations. Refusing someone is part of the job here, and it is easier when the floor and the ceiling were fixed before you started.
The last practical step is the one founders skip because it feels like overkill at this size. Have a securities lawyer read the documents and confirm the exemption fits your facts before any money moves, and keep that confirmation with the signed documents, the wire confirmations and the accreditation representations, in one folder started on day one. That folder is what a Series A lawyer asks for, and rebuilding it two years later from email threads costs far more than keeping it.
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