Friends & Family
Often the first money in is personal. It can come from personal savings or from people who believe in you via a loan, equity investment, or even crowd-funding. If it is borrowed from friends and family, some sound advice follows…
- If the business risk is high, consider options to de-risk the commercial worthiness of the idea (through research grants, customer discovery, boot-strap methods).
- Money, when borrowed, is like any other asset that does not belong to you. The equivalent to “if you break it, you bought it” in loans is an old banker’s adage. “If this goes wrong, it will hurt you more than it hurts me.” Speaking with experienced business professionals prior to borrowing helps to avoid money wasted due to unknowns.
- To save valuable friend and family relationships we advise executing loan documents, no matter how simple. If you are giving equity in exchange for cash, please speak with an advisor first to make sure you are protecting your business for the long term.
There is no doubt, friend and family money is the most common beyond personal savings for a business launch. Other common early forms are micro-loans, money from pitch competitions, pre-sales (which can include crowd funding) and supplier credit based on good personal credit. Early-stage cash for ownership investment in addressed under ‘equity investment’.