Friends and Family Money

Compass with magnifier and money on mapAre you ready for things to get weird? That’s what often happens when you ask friends and family to invest in your start-up. Friends and family are probably the most likely sources of capital for your project. The proclivity for friends and family to invest in an entrepreneur’s start-up is the fact that investors most often invest in a person they can trust. While this may be the easiest way to raise money, ask yourself if you’re prepared for an environment where every family conversation is about your business. Along the same lines, are you prepared to deal with this group if the investment fails?

Believe it or not, there is only one party that is absolutely required to invest in your start-up: you. Whether you are simply giving up equity (the cost of capital) to other investors or investing capital yourself, outside investors want to see the founders commit to a new venture. As a result, its very important that you understand your own risk tolerance. Can you personally invest in the idea?

Thumbs UpTry This: Only seek friends and family as investors if they can afford to lose the money. Make them aware that it is a high stakes gamble.

 

 

 

Thumbs DownAvoid This: Don’t let friends or family invest out of guilt. People should invest because they want to invest, not because they feel like they should invest.

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