At first, we might be hesitant. After all, there’s a reason why the saying “you shouldn’t do business with family” exists. Indeed, the idea of mixing your personal life with your professional one might be risky. Emotions can get in the way of business decisions, leading to conflicts and making it challenging to have clarity around expectations and responsibilities. And unfortunately, we might end up damaging our business and our relations with those people.
However, seeking investment from loved ones can also provide unique advantages that other funding options simply can’t offer. And it’s a great idea if we are just starting our business efforts! You might even be surprised to find out that family and friends are the most common investors. In fact, around 35% of startup founders have raised the necessary capital from friends and family, accounting for more than $60 billion invested yearly. To give you a better image, that’s more than the amount of money invested by venture capitalists and angel investors. Combined!
And it makes sense! Family and friends are frequently the most devoted investors because they believe in our vision, they want to see us succeed, and especially, they want to participate in our company because they feel it is a smart investment. This means that they are more likely to invest in our idea than a stranger would be. And this is not something you want to knock off!
Imagine having a group of people who believe in you and your business so much that they're willing to invest their hard-earned money to help you succeed. That's the power of family and friends investing!
And with that, of course, there are numerous benefits! There is no need to go through the bother of securing a loan or navigating the intricate world of venture capital. Your relatives and friends have your support and are eager to assist you in obtaining the money you require to flourish.
Even more so, when we invest with family and friends, we get to make all of the decisions without having to answer to a board of directors or outside investors who may have different aims or expectations. And we may structure the transaction in a way that makes sense for us and our company rather than having to adhere to the stringent limits and constraints set by other investors.
Working with individuals we know, and trust will offer something that other types of investors can’t: a sense of community and emotional support. Starting a new business can be a lonely and overwhelming journey. But having our loved ones on board can provide a sense of comfort and motivation. This is especially useful when we need help, guidance, or a shoulder to cry on as we navigate the ups and downs of running a business.
First and foremost, you must develop a thorough business strategy. This can help you describe your objectives, plans, and projections, as well as provide you with a road map to follow as your firm grows. It’s one of the most important steps, folks! Even though you go to friends and family for help, do not expect they will give you everything on your plate.
Remember that episode from The Office when Michael started his own paper company and went to his grandma for financing? Well, he went there expecting to charm her, he didn’t consider bringing a business plan! What happened? Of course, his grandma did not want to assume the risk of supporting him. Funny and sad at the same time, but a great lesson for every entrepreneur that turns to family for money!
The main takeaway from this tale? Well, when it comes to family and friends investing, clear communication is essential. Make sure to discuss your company strategy and investment opportunity facts with potential investors in a clear and simple manner. I think you agree, right?
Yes, raising funds from family and friends may be a terrific method to get your business started, but it is not without its difficulties. Be certain that everyone is on the same page when it comes to the investment's specifics. This comprises the amount invested, the estimated return, and the duration of the investment.
Moreover, raising funds from family and friends might place a strain on your relationships. Keep this in mind and try to maintain open, honest communication throughout the process. Nobody wants to destroy their relationships, right? But life occasionally throws us a curveball, and things don't always go as planned. So, prepare for the unexpected and make sure you have backup plans in place in case things don't go as intended.
It is vital to realize that investing with relatives and friends is not a guaranteed source of cash. Family and friends investing in businesses and startups are not unusual, but it does require a certain amount of confidence among the people involved.
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