Startup Investment – Family and Friends

The world is now well and truly excited by entrepreneurs. It’s no longer seen as risky to be entrepreneurial, it’s positively embraced and by many, admired.

Many people have fought the ‘rat race’ and decided to dream big, which means your startup is more likely than ever to be met with support, as long as you know how to pitch it right.

The difficult part isn’t the dreaming, or even the planning, it’s the scariest part – the financing.

Here are a few useful tips for when you ask family and friends to invest in your startup:

Before you ask:

Drop your pride

The first step is asking. A lot of people plan to ask without really thinking, then realise they’ve completely forgotten the shame involved in asking anyone for money, no matter how close they are to you.

Firstly you’ll need to realise you needn’t be ashamed, in fact the more bashful you are in relation to your new invention the less likely you are to gain any support at all, from anyone. Drop your pride and remember you’ve got to be brave to move forward, and one of the first steps is asking your family and friends for financial support, at the very least you’ll get a no (and you’re going to get a lot of those when you’re first starting out!) and at the most you’ll get a yes, which means you’ve got the opportunity to pursue your dreams.

Logic

Focusing on all the negatives or all the positives is a bad thing, because it’s not balanced.

Imagine if you’d allowed bad or good emotions to run your thinking when you were considering all your invention ideas, you’d probably have a finished idea completely different to what you have now right? And not in a good way.

You have to take a balanced look at the idea of borrowing from friends and family. Yes you’ll be getting interest free money from someone who wants to support you, because they love you, but what about the potential emotional downfalls? You mustn’t dwell on everything that could go wrong nor everything that could go right and instead make a balanced risk assessment. Truly think about all the different scenarios that could come from this avenue of business finance. Many entrepreneurs get blinded by crippled low-confidence or over-emotional attachment to their product, both of which are startup killers. In order for this to benefit you and your family, you must detach yourself and think about it logically.

Treat them like you don’t know them

One of the best ways to approach friends and family when you’re asking for investment is to pretend they are strangers. Don’t skip all the legal documentation just because you love them, insist on all the legal documentation because you love them. That way there are no misunderstandings and you know everything has been done the right way.

Crowdfunding

If you are considering using crowdfunding, your friends and family will play an important role in spreading the word and making the initial contributions towards your crowdfunding campaign. Using a Crowdfunding platform, such as Kickstarter, will make it easier to ask for funding and makes investment from family and friends more structured. Crowdfunding will also give you the possibility of raising a much larger amount than if your were just relying on close family. The Comprehensive Crowdfunding Guide teaches how to create a successful crowdfunding campaign.

When they’ve said yes:

Consider owing rather than giving

In some instances it can be better to simply owe somebody money rather than allowing them to invest in your business and become a shareholder. So if someone wants to invest in your idea, consider it carefully as they could end up having a say on business decisions, which can often complicate things, especially when the investor is a part of your family.

Don’t put a time on it

Rather than telling your friend or family member you will pay a certain amount back every week or month, consider paying them back based on how well your business is doing. So rather than a fixed payment plan you can give them a lump sum once your startup starts earning a certain amount of money or pay them a certain percentage of your profits. This way you’ll only be paying back what you can afford.

Nonvoting

If you do want your family or friend to be able to invest in your business but don’t want them having a say in how things are run, consider making it a non voting share. This means they still have all the benefits of being a shareholder, but they don’t have a say in how you run your business which could save a lot of emotional issues later down the line.

Remember that if this form of investment isn’t for you, there are plenty of other avenues for you to explore. The world of business is the most accommodating it has ever been for entrepreneurs. Remember true entrepreneurial spirit is all about passion and pushing to succeed, so if you really believe in your idea, a door will open for you eventually.