Friends and family investors

What is it?

It is one of the most common forms of startup funding out there. Banks and independent investors might not want to risk money on you. But those who are close to you and believe in you might be willing to take a chance on your fledgling business. Your friends and family may choose to invest in you through a gift, a loan or an equity investment in the business - whatever means, make sure you have a signed document or letter saying the money was given and what terms were agreed upon.

What are some advantages of having friend and family as investors?

They will likely be more forgiving than outside investors when it comes to your business' ups and downs.

Raising money from your personal network can also be a step toward securing money from future investors, because it demonstrates that you are grounded in a network of family and acquaintances who have already bought into the business plan.

The terms you agree on are highly flexible and customizable, your credit history will likely be irrelevant and collateral will likely be unnecessary.

What are some disadvantages of having friend and family as investors?

You risk lost friends and strained relationships with relatives. 

Pro Tip

Be open and honest about the risks, and explain what the money will go toward and how it will grow the business. Then follow up with written materials later.