FUNDING FROM FRIENDS AND FAMILY
Unless you live next door to venture capitals, you have to start out getting capital either from your own savings or from friends or relatives, this can be very difficult. Of course, no sincere person wants to ruin friendships or family relationships over money. On the other hand, if you truly have a great business plan, and are capable of carrying it out, your friends or family may be very interested.
Just like with any other investor, if you have the attitude that you want to safeguard them just as well as you’d safeguard yourself, you’re going to be miles ahead. A few other tips:
Don’t let anyone, friend or family, invest more than a percentage of their net worth in your business. Ten or 20% is a safe zone.
Document everything in writing. Even though you have known them all your life, putting things in writing helps eliminate misunderstandings, as well as providing a level of honesty and sophistication to what you do.
Treat them the same as you would an investor whom you had no relationship with, keep business-to-business and friendship to friendship.
If there are problems, let them know right away. The first thought one has when there are problems with your business, is not tell your investors, when it involves your friend or family, yet to be upfront with them right away. It’s difficult, it’s unpleasant, but people understand that they made an investment and nothing is without risk. Avoiding them or hiding problems from them him is a mistake that you rarely can recover from.
Finally, do your very best to make your business succeed.