Any entrepreneur who has started a business and needed to raise capital to grow has probably received this same bit of wisdom – “You’ll need to get your friends and family to invest”. Sarcastically you reply, “Great, I never would have thought of that”.
Now that your sarcasm has made you feel much better, the truth begins to sink in. Your friends and family are really going to be your quickest and easiest (but not the least painful) path toward raising much need capital for your fledgling enterprise.
While there are probably hundreds of things to keep in mind when you consider having family and friends invest in your entrepreneurial venture, here are a few quick tips I have learned from my trips down “friends and family” lane.
Remember, Family and Friends Know the Real You!
The good news is… they know you. The bad news is… they know you. When you ask those you have a history with to invest or for a loan, the first hurdle you must overcome is their perception of you, your reputation with them, and their recollection of all your past sins. You may no longer do the foolish or naïve things of the past, but that does not mean that some friends and relatives don’t have long memories.
You have to take steps to help them overcome this history by refocusing them on who you have become and the outstanding business opportunity you are presenting to them. One tool for achieving this goal is your business plan, which will provide your friends and relatives with a detailed glimpse of the current you and help reassure them of how responsible you will be with their cash. You must reposition your past as a time full of rich learning experiences which you will now leverage to earn yourself and others a fortune.
You will probably have to work extra hard to prove that you know what you’re doing. Take the time to create a business plan that demonstrates you have done your homework, thoroughly researched your market, and laid the foundation for future success. Your friends and family members will appreciate your attention to detail and feel confident that you have a plan for a business that makes sense and profits!
Make Sure That They Know You Are in Charge
It is VERY important that you make it clear to them that you are in charge. Let me repeat that – you must, must, must make it clear that you are in charge.
Accepting an investment from family and friends opens you up to a variety of emotional hooks and distractions beyond that of most investors. The last thing you need are loved ones telling you how to run your business, which direction you should go in, who you should hire, etc. Set the ground rules early and don’t back down. They may be investors in your company, but it is still your business. You are the BOSS.
Don’t Be Distracted By Emotions
You’ll need to learn to separate or ignore any emotional entanglements you currently have when being questioned by friends and family members. The first time I asked family to invest in a business, I was very annoyed by most of my grandmother’s questions, but she finally relented and decided to invest $5,000 in my do-it-yourself used car lot.
Any questions are reasonable and any investor would ask them, so treat your friends and family with the professionalism and respect you’d have with a non-family member. Taking this advice to heart will also be a key in overcoming past indiscretions and proving your maturity to your friends and family.
Ok, so accepting investments from friends and family is not easy. But, the reality is that getting someone to invest – whether it is a relative you have known for 30+ years or a professional investor you just met – is never easy. Take it slow, make your case, and be confident in your ability to transform their investment into a pot of gold!