Whether you are just starting out, or have already exhausted every other option for capital available, friends and family may come into play as a source of funding. These people have been your fans before you built your startup, and they will hopefully be around for years to come. Though they may have a significant role in your personal life, getting them involved in business requires a delicate balance and professional approach. You want to ensure that relationships are preserved, and expectations are clearly defined. To make sure your next holiday dinner isn’t filled with awkward silence from a deal gone wrong, we have prepared some tips to get you started.
1.) Communicate Clearly and Often
Every entrepreneur's network will vary regarding experience with financial savvy and understanding the risk involved with investing in a startup. When it comes to asking the people closest to you for money, take time to prepare a pitch deck that covers your business model canvas. If you are passionate about your startup and are all in, then you should also be able to articulate how you intend to make money and recoup their investment. Putting in the care and effort to prepare a well-thought-out presentation can make a world of difference to show friends and family that you are taking both your startup and their potential investment seriously.
2.) Do Your Due Diligence
Before a single dollar is accepted, seek out the proper guidance from local resources that may provide discounted or pro bono legal and financial guidance on how to properly structure, record, receive, and potentially report the funds you raise. Educate your investors on the terms and set clear and realistic expectations on how their money will be used, what they get in exchange, and the frequency of the updates they will receive. Whether they receive shares, an exchange of product or services, or some other form of compensation, clear any of the potential offerings you intend to provide to your investors with a professional to avoid headaches later on. Be thorough and keep all communications filed and archived to ensure no miscommunication ensues from verbal agreements that are not documented.
3.) Plan Ahead
While it is important to get the money needed to get the startup going, you should also consider the long-term impact of bringing on friends and family as investors and potential shareholders. Professional investors like to see that a startup is financially stable and has a diverse pool of funding sources, however, they are also wary of startups run by relatives and friends that don't have the skills or experience needed. Set clear expectations for their role in the business and make sure that you have a team with the necessary skills and experience to execute your plan and drive the organization forward. Their direct involvement should be limited to what makes sense for the startup and not your personal relationship with them.