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What is a fair return on small startup investment?

    • 1 posts
    April 8, 2013 2:35 PM EDT

    Hello all,

    I am starting a business and working on raising startup capital. I only need to raise 7000 dollars, so I am appealing to friends and family for small investments. Im wondering if anyone has any experience taking what essentially amounts to a loan from friends and family. I am wondering what a fair return on their investment is, when I should pay them back, how I should pay them back i.e. lump sum or installments.

     

    Any advice on the topic is much appreciated!

    • 927 posts
    April 9, 2013 11:18 AM EDT

    Parkerrush,

    Generally speaking, the return should be commensurate with the risk - as perceived by the lender/investor. 

     If you are borrowing the money “personally” and are committed to repay it –regardless of the business results, then the perceived risk should be fairly low. Therefore,  a proper return might be in the interest rate category.

    On the other hand, if their capital will be “at risk” –then they should expect to get a significantly larger return. There are several ways to do this. The one best one would be the one that satisfies their needs yet is good for the company as well.

     What is most important is that both parties are clear on the expectations.

     If you want to discuss your specific situation, feel free to drop me a PM or contact me directly.

     

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