Making your investors happy can always be a daunting task, but the situation can get even more complicated when your investors are your friends and family. Those new to entrepreneurship may not have the experience or opportunities necessary to seek investment from traditional investors, meaning they can turn to their loved ones to help them fund their dreams. While this is certainly a viable solution, it is not without risks for your relationships.
To help you avoid any bad feelings should something go wrong, nine members of Council for Young Entrepreneurs each shares some advice they would give an entrepreneur to keep things cordial when relationships with their family and friends are on the line.
Members pictured from left to right.
Photos courtesy of the individual members.
Table of Contents
1. Be clear about expectations from the start
The best way to keep things cordial with your family and friends when you’re looking to invest in them too is to be very clear about your goals and expectations from the start. You should also be prepared to answer tough questions about your business. Finally, it’s important to remember that you are ultimately responsible for your own success or failure, so don’t put undue pressure on your loved ones to invest in your venture. – Andrew Munro, AffiliateWP
2. Treat the relationship objectively
I think the key when dealing with investors who are family or friends is to avoid taking advantage of the empathy that these friendships and family ties often bring. Whether your investors are banks or your brothers, treat the relationship as objectively as possible and don’t expect greater understanding from friends and family if things don’t go your way. Be sincere and show them the hard work you have done and continue to do to reward their investments and their continued support through thick and thin. – Kyle Michaud, Caroline Dozer
3. Stay honest all the time
Far too many people burn bridges because they combine friends and family with investing. If possible, remember that they are your friends and family first and foremost. After all, you can’t let friendship go to the detriment, so it’s better to stay friends than investors. To keep things cordial between you and your friends and family, you need to stay honest. Provide updates on their investments however they go. If they are not doing well, don’t sugarcoat it and reassure them that their investments will pay off in the future. Honesty will make them trust you more so that if the time comes again, they will continue to invest. – Simon Bacher, Ling app
4. Keep the lines of communication open
If you respect your business, you must respect your investors, even if they belong to your family or circle of friends. An investor should first and foremost be treated as an investor. Period of time. Mutual love and respect have nothing to do with finances. The most important thing to remember when your investor is also a friend or family member is to keep the lines of communication open. You must be honest about your plans and expectations and be willing to listen to feedback and criticism. It is also important to understand the financial arrangement between you and your investor, so that there are no misunderstandings later on. You also need to be able to have honest conversations about the company and make them feel comfortable with the level of risk involved. – Vikas Agrawal, Infobrandz
5. Make a detailed plan or proposal
It can be challenging to handle finances when your investors are your friends and relatives. You may feel you have to choose between what’s best for them and what’s best for the company. However, it is essential to remember that you are running a business and you must make decisions based on what is best for the business. It is best if you have a detailed plan for how you will use the investment money and how you will pay it back. Fortunately, investing with friends and family has another advantage: they are more patient than professional investors. It’s natural to want to keep appointments casual when working with people you know well because you’re concerned that formal paperwork can make things feel less personal, but avoid being careless. – Candice Georgiadis, Digital day
6. Define Boundaries for “Business Talk”
The only advice I would give is to set boundaries for when things can be discussed. Don’t allow your family or friends to approach you at a holiday gathering to ask about the company. Let them know in advance when they invest that you would be happy to talk to them about such things at any time during the hours you work. There are other times for social activities, and they have to agree to that in the beginning. For those who haven’t, take them all aside for the holiday and ask them to make an appointment with you not to bring up any business when you visit for the holiday and to ask their questions, comments or concerns to save for times when you are at work. – Baruch Labunski, Rank safe
7. Set key performance indicators
An important piece of advice would be to establish key performance indicators (KPIs) for each part of the business. This ensures that everyone is on the same wavelength and knows what is expected of them. It can also help avoid disagreements about strategic decisions later on. Another important factor to consider is transparency. Be sure to share accurate information with your investors and be upfront about any potential challenges or risks your company may face. Building trust is essential in any relationship, so don’t try to hide anything from your investors. By following these tips, you should be able to maintain healthy relationships with both your family and friends. – Pratik Chaskar, spectra
8. Put your agreements in writing
A common mistake when looking for investments from friends or family is that people don’t put things in writing, which can lead to unforeseen conflicts and disagreements. It is best to establish terms and conditions that are favorable to and approved by the parties involved. This is the only way to communicate information clearly and create expectations through mutual consensus of the stakeholders involved. This is something you should do to ensure that your relationships remain intact, even if things go wrong or the investment doesn’t pay off as planned. – Stephanie Wells, Formidable shapes
9. Find other sources of capital
I never looked for investments from friends or family because in bad times you can lose both investors and friends. Investments from friends or family should only be in the initial phase and the amount should be lower. You also have to be very transparent about the risk. Make it clear up front that even if you lose their investment, you don’t want to lose the relationship. Once you’re out of the seed stage, you’ll need to start looking for VCs. Do not use money from your friends or family. – Piyush Jain, Sim palm
