Many novice entrepreneurs find it extremely difficult to find the first startup funds from venture capital or angel investors. Their only chance is therefore such affectionately Friends, Family and Fools (Friends, Family and Fools). These are the only people who can believe such a novice with zero business experience and I’ve just started to have product development.
Surprisingly, according to some statistics disclosed by fundable for the United States, friends and family have invested about 60 billion dollar capital in 2014. Almost three times the amount paid by venture capital. The average value of $23,000 for startup is usually paid as a loan “convertible”, often in exchange for an equity interest.
Certainly many startups would need far more funding to operate properly, but this initial contribution from friends and relatives, as well as from your own pockets, is a sort of guarantee that qualifies the company before investors begin to consider professional to come into play. Their reasoning is simple: even if your family believes in you, why should we?
This is yet another confirmation of the fact that the right people are more important than the right product. This article will share 8 tips that will help you obtain financing for your startup from friends and family before and after by professional investors.
1. Ask an exact amount to reach a precise goal
The shy and introverted will also become excellent engineers, but will never become entrepreneurs unless they learn to cultivate good relationships with family and friends, practicing with your elevator pitch and respectfully requesting funds. Wait for someone to give you money without sharing a clear goal, could result in a wait very long.
2. Offer a formal agreement as well as a handshake
The most widely used form of loan is that the convertible loan. That is, a loan with a term interests (even small) and can be converted into shares if things go well. Prepare an agreement of this kind will demonstrate respect and professionalism.
3. Make sure that people see your investment and your commitment
It is necessary for you to be able to perceive the difference between a hobby enthusiast and a sincere effort to set up a business. It shows that you have already produced the work and have conducted studies, explaining that you are not asking or begging or a donation.
4. Build a first prototype at your expense
Surely even you know people well-versed in talking but that does not bring into play and you do not ever take the risk. Every good entrepreneur must risk a bit of his, to be credible and inspire leadership. Investors are mostly of followers, not leaders.
5. Never ask for more than your friends and family can afford to lose
In a nutshell: do not be greedy. And remember that you have to live with these people even if your idea does not work out. Always ask for the minimum amount necessary to achieve a significant milestone, leaving a bit of margin for contingencies.
6. Share the plan of action and possible risks
Once again, remember that we are talking about investments, not gifts. Anyone, who wants to know what investments will be made with their own money, and expect regular updates on the progress, be very honest with friends and family too naive confident, since 70% of startups fail within the first 5 years.
7. Focus on friends with relevant business experience and knowledge in the field
An uncle wealthy may seem an easy target, but less rich but a friend with contacts and experience in startups in the same sector can help a lot more than any form of money. Remember, your goal is success, not the collection of money to spend.
8. League loan repayments to revenue growth
Instead of defining the installments on a regular basis, binds the beginning of the loan repayments to a certain turnover threshold, or possibly to the conversion into shares in accordance with the logic of change already-shared departing.
In general, not considered friends and relatives as a last resort financing, but as the first goal, and perhaps. If you are lucky that it is good, the only one you will ever need. If you succeed in your business, you’ll see that there will be more joy to share success and money with the people you are closest.