Forums: Discussions for entrepreneurs and small business.

I am seeking funding from family.  Anyone want to talk about pro`s and con`s of this approach.  People do it all the time and it is perhaps the best way to get start up money, but how do you ask, how do you repay and how do you keep business and love separate????

Rollo,

I am going through the scenario you mention at this very moment. We should have a packaged private and limited [equity] offer ready for Spring of `07. It was a tough decision to include friends and family on our list of investors but it was a decision made not so much out of need as out of love. The truth is that we probably won`t be able to raise much money from family and friends but we felt that we owed it to them to offer them a chance to become part of what we were building. The truth is that we don`t need their money but we do need to let them know..that this could be a great opportunity for them just as it is for us. 

We make it clear in the documentation that we aren`t trying to convince anyone to invest without any real ability to take that kind of risk and we also cannot guarantee returns.We can only explain with as much detail as possible what we are doing and where we are headed. 

If you are in a loan situation you can expect some flexibility and a general support from your family because they really do want you to succeed. The bottom line however will be that they will want their money back and loans are designed to make sure that happens and that serves to ease the trepidation that your investors might feel.

Do you have any idea what kind of terms you would like to offer?

~Eric

Rollo,

Erik (DaveNYY) and Craig both bring up good points. I should clarify my earlier point.

Erik is right that getting funding from family can be a very bad idea and looking at the slim odds of successful ventures, it usually is. To say that flat out, it`s a bad idea however is really just a safe statement that isn`t always true. Every situation is different and that`s where Craig`s point lands.  

You need to look at every method available to you and weigh the cost, both financially and how it could affect the health of your family`s relationships.

One thing is for certain. Don`t even think about pressing family for funding (or any other source for that matter) without a solid executable plan.

~Eric 

It depends on how much you asking, and make sure you have an agreement to return their money if the business does not materialize. I had my family members sign a Private Placement Memorandum. They knew the risk. They funded the first round, and then we got the rest ourselves online.