How to submit?

8 Relationship-Saving Tips For Raising Startup Capital

If you’re raising startup capital from family or friends, what is one tip you’d give a fellow entrepreneur to make sure the deal doesn’t affect the relationship?

Wo Businessmen Having Meeting

 

 

Underpromise and Over-Deliver

BenRubensteinavatar“Set extremely clear expectations. Don’t tell friends or family that you are the next Google or Facebook. Even if it’s possible, it’s unlikely. Convey to them the company vision as well as the risks, but highlight the risks so they understand what they are signing up for. Show them the long-term potential of your idea, and make sure they understand they are not investing in a savings account.”

 

BEN RUBENSTEIN, Yodle

 

Protect the Relationship

Rachel_Rodgers100“Some entrepreneurs think they don’t need a contract with a loved one since it’s a close relationship. That is all wrong! The closer the relationship, the more important it becomes to protect the relationship. That’s why it’s important to have a contract when raising money from family and friends, ensuring you both have a clear understanding of the arrangement and exit plan if something goes wrong.”

 

RACHEL RODGERS, Rachel Rodgers Law Office

 

 

Don’t Do It

Robert-J.-Moore“Just don’t do it. If your idea has merit, you can find investors who don’t come with the baggage of a personal relationship.”

ROBERT J. MOORE, RJMetrics

 

 

Rely on Honesty and Transparency

David Ehrenberg“If you’re going to take money from family and friends, make sure that it is money they are willing to lose — and that losing this investment will not have a negative impact on their lives. Make sure that those close to you understand the real risks involved in investing in a startup. It’s your responsibility to make sure the risks are understood before taking any money.”

 

DAVID EHRENBERG, Early Growth Financial Services

 

 

Get Agreements in Writing

andrew schrage“Outline the specifics of the funding, such as whether any interest will be charged, whether the money needs to be paid back and, if so, within what time frame. Make the written agreement comprehensive, and include all relevant details so both parties know the exact nature of the agreement.”

ANDREW SCHRAGE, Money Crashers Personal Finance

 

 

Define Failure

Kevon Saber“Here’s a script you can use: “While I believe the opportunity is worth pursuing despite the business risks, the risks are large. Since our relationship is more important to me than your investment, I only want to move forward if we share the following definition of failure: ‘a crisis of integrity or effort.’ The last thing I want is awkwardness between us if the startup does not work out.”

 

KEVON SABER, Fig

 

 

Let a VC Vet Your Idea First

manpreet“Never ask or allow your family and friends to take on a risk that an experienced venture capitalist won’t take on himself. VCs and angels view businesses on their merits and choose with their heads — not their hearts. If you can earn VC support, then it’s okay to open the doors to allow family and friends to support you monetarily and potentially benefit financially from your eventual growth.”

 

MANPREET SINGH, Seva Call

 

 

Make Sure They Can Afford It

thursdaybram“Your friends and family care about you, possibly to the point where they might risk their well-being to help you reach your goals. Before you even start talking about an investment, you need to know for sure whether your friends and family can afford to help you. If they can’t, don’t even ask.”

 

THURSDAY BRAM, Hyper Modern Consulting

 

Photo Credits

StartupCollective

Vote on recent startup submissions:

Monthly Sponsors

More Stories