Calling on friends and relatives to finance a start-up

Like anything there are upsides and downsides to calling on friends and relatives for start-up money. The most obvious downside is that personal lives and relationships can get messy when money gets involved. Fortunately, there are workarounds to that – the main ones being the start-up founders treating their close relationships as business partnerships through formal, written and professional agreements. If there is an effort made to be up-front about terms of repayment, the nature of the idea and what family and friends can expect in terms of advisory power or incentives then this can be a mutually beneficial relationship with an added dimension: no one is going to be more proud than a mother, father or best friend, when that idea gets off the ground. Calling on friends and relatives is a privilege – and founders must remember that when seeking funding.

Making That Kitchen Pitch Professional

The key to calling on friends and relatives for early funding is treating the actual meeting as one might with an external investor or venture capitalist. The catch to calling on friends and relatives however, is this: don’t ask for more money than they can afford to lose. This means there needs to be some knowledge, beforehand, about what that individual’s personal finances are like and if they can afford to buy in to the product or idea at all. Show that there is personal investment (or “skin in the game”, as they say) to prove to family members that there is cause to seek more funding, now that initial sources have been tapped out. Show, through presentations and follow-up written materials, plans for rollout, acquisition and growth.

Here’s the good news: if all else fails – and there is a desperate need for a cash infusion to get this start-up off the ground – think about using crowdfunding. Not only are there many online platforms that help showcase an idea, prototype, or finished product, there are also many strategies to help harness the specifics of each platform. Make sure to distribute your idea or product on as many of these platforms as possible so it can have the greatest reach. The point is to make an audience aware, educate them and give them an incentive or reason to buy in on the early stages.