Should I Take My Friends' Money?

http://www.emadibrahim.com/2013/03/25/should-i-take-my-friends-money/

by eibrahim • 13 years ago

5 7 13 years ago

inuhj• 13 years ago

Don't. It's a bad idea. You can no longer discuss progress and failures with them because they're personally invested. Against my better judgment I took $ from family. When I was doing poorly I was pressured to shut it down. When I started doing well I was pressured to pay out when I really needed to invest in the company. And all the while I hear the "you couldn't have done it without me" speeches.

They'll start watching every purchase you make and wonder "is that my money he's spending?" I can't talk about buying a new phone, a new laptop, or anything else. My own mother heckles me about "paying my employees too much". Every time they see a photo of you on facebook at a music festival they're going to think, "so thats what he's doing with my money." They'll want status updates every time you see them when what you need is a few hours away from work.

If you can bootstrap--do that. Only raise money to expand when you're already doing well but could be doing better.

eibrahim2• 13 years ago

great f*ing advice man... that's what I am worried about and I am glad you validated and confirmed my fears.

briggsbio• 13 years ago

I don't think this is the greatest advice. That said, it can be exactly like this and worse.

You really need to evaluate who you're receiving money from. Are they the right person to invest in your company? Will they support you in the low times and not try to screw you in the high times? If you think this will happen if you take money from your particular friends and family, then inuhj's advice is solid.

But it sounds more like expectations weren't managed. If you haven't told your investors how you're going to spend their money that is your fault for not telling them and treating your investors how they should be treated. Every investment dollar should have a purpose. (Yes, treat your friends and family like investors. Not like family. If you treat them like family who gave you money, they'll treat you like family who took their money, as in inuhj's example.)

The golden rule of raising from friends and family: If you're trading on relationship, then you put the relationship at risk. If you're trading on merit of the investment, then the relationship is separate.

This then allows you to at least somewhat evaluate whether the investor will freak out if you lose their money. As with an angel investor, they need to be willing and ABLE to lose every penny they put in. TELL THEM THAT. If they have a problem, or you sense a problem, don't take their money.

This then blur's the line between "friends & family" and "angels." VC's or VCs-in-angels-clothing are a separate category. This is not a firm that "does angel investing" this is an individual high-net-worth individual. Could be friend, family, or other.

And this is coming form a guy who will never have a relationship with his Godparents because a business deal between my parents and my Godparents went south when I was a baby.

BishoyDemian2• 13 years ago

I'd never put stress on my personal relationships for a business that have chances to fail as much as chances to succeed. my best bet here would be VC, its a professional way to handle investment, and you will be sharing your company with someone yes, but still own your idea/company mostly and have influence and you'll learn a lot about investment fund management and other perspectives of a startup you might have not though about.

eibrahim2• 13 years ago

the problem is that it is a ton of work to raise money... friends and family is a lot easier...

BishoyDemian2• 13 years ago

its easy once you figure out how your startup is going to be profitable and try to prove that to VC funds, and its a good idea to put some effort in articulating your business goals, and plans.

davidkatz• 13 years ago

Don't take money from friends, the potential problems there are countless. For one thing, your chances of success are low and your friends can't properly estimate that. They hear too many startup success stories in the news. A professional investor knows what he's getting into, your friends have no idea.

Should I Take My Friends' Money?

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