Several years ago, I wrote about the friends and family savings club on a small scale of each person gaining $1,000 to do something in their personal or business life. However, today I want to discuss asking friends and family to fund your startup. Capital funding can range from $5,000 to $5 million depending on what you’re trying to do. Before we get into the four points, I would do your due diligence on who you want to invest in your company. I have seen people lose friendships over $25, so we can only imagine $5,000 seed funding.
How Much Capital Do You Need
I am always joking if God came to me said, “Tasha, I have $17,000 for you, but you have to tell me how you would spend right now before I hand it over.” I could tell him exactly where every penny would go because I always think of managing extra random funds. You are doing that exact thing when asking friends and family to fund your startup. Outline the total amount of startup capital needed and then break it down into these categories: Initial Investment, Working Capital, and Home capital.
Suppose you need $10,000 seed capital, then when you would ask friends and family to fund your startup with $1,000 each if it’s a group of 10 people. You would need to work the numbers dependent on the research of the people you chose to invest in your business.
Presentation Of Business Plan or Pitch Deck
Presentation of your company will include a pitch deck with your detailed business plan. Your plan/deck will include how the business will run, structure, financials, metrics, deliverables, analysis of the market, and how your venture will become scaleable. In your pitch, you can show the metrics and data from what you have done in x amount of time and how you are utilizing this series of funding to scale your business.
Legal Documentation
You are entering into a legally binding agreement with investors at the end of the day, even if y’all share the same last name. All details need to put into writing. The signed agreement should be as detailed as possible, including things such as; amount borrowed, interest rate, payment schedule, late fee or penalties, and how allocated funds will be spent. Have all documentation drawn up by a lawyer and then notarized signatures in front of a professional.
Manage Expectation Of Return
When doing your presentation to your friends and family, you want to make sure that you manage their expectations of growth and payments coming from you. If you do not think it will be within the first year of business that they will send dividends for their investment, let them know. This goes back to your pitch deck outlining the details of when they will be paid back over what time period. Furthermore, it would be best if you remembered a risk in investing and want to be mindful of their feelings towards this. They are loaning you capital, and this might bust. In your plan, you need to outline how you will reimburse them if this does n
All four of these points are essential to ask friends and family to fund your startup. Being prepared for rejection is another thing you need to keep in mind. It might not be the right time for them to put up capital in your business. You can look into other ways such as; crowdfunding, business loans, low-cost ways, or simply bootstrapping your business.
