Intro to funding: Friends and Family

http://www.burningdoor.com/askthewizard/2007/03/introduction_to_funding_friend.html

by mattculbreth • 19 years ago

5 4 19 years ago

jwecker• 19 years ago

I know a man near San Diego who started a business and borrowed from friends and family. The business didn't take off like he wanted and he got very depressed- feeling like he had let down all of those friends and especially family. He took his life shortly afterwards which was obviously the last thing any of us would've ever wanted.

Make sure that those who invest understand what kind of a risk it is. If you ever catch yourself saying to someone close that you don't see how it could fail, or offering a huge rate of return and yet saying that it will almost definitely be successful- then you yourself do not understand the risk and probably should probably take a reality pill. Oh, also, if you ever find yourself accepting an investment from (usually a family member) someone who will absolutely need that money back in 6 months or else their standard of living will be adversely affected- you're doing something wrong- you are not managing risk as you should.

mattculbreth• 19 years ago

Good post. Yeah I wouldn't do this unless two things were both true: 1) The person could afford to do without the money for quite some time, 2) I was pretty sure it would succeed.

It's awfully hard to gauge #2 when it's your idea and you've got yourself emotionally wrapped up in it.

I'm beginning to think there's an entire class of startup funding that needs to be written about a bit more--spouse support. If you're married and your spouse can earn enough money to pay for the household for a discrete amount of time then that's perhaps the greatest bootstrapping source imaginable. Seems like a few of us here (from other posts I've seen) are considering this.

r0b• 19 years ago

For the serial entrepreneurs among us: it's important to keep in mind that you only get one shot with friends and family money. If you don't succeed, and decide to move on to another idea, your friends and family will be very reluctant to invest in yet another venture. This can be problematic if you're the sort of person who likes to jump from idea to idea.

I financed a company a few years ago with a small amount of money from family, and ultimately it didn't take off. I'm now very hesitant to approach them again. I wish I had been a little more cautious before deciding to take that route...

ced• 19 years ago

Maybe it's better to take a loan from them with clearly defined terms. That way, if all fails, you can get a job and pay it back. No emotional damage.

Intro to funding: Friends and Family

Related Stories