There are one of several reasons that a business investor choices to invest in a
new business. But for those who are family or friends of the entrepreneur, the reasons
vary from altruism to supportive.
Most family and friends decide to invest capital in a new business started by someone
they know because they are motivated by a complex combination of financial self-interest
and a desire to help the individual become a success.
An entrepreneur of a small new business first needs to make a list of the names
of individuals likely to invest capital sources in the new business. Then entrepreneur
needs to follow this up with a top new business letter as well as direct meeting.
Entrepreneurs also need to practice their kitchen table pitch before they make it
to family and friends. Even though the potential business investors are family and
friends, the entrepreneur needs to rehearse the business pitch so that he or she
will sound confident about the business.
An entrepreneur who is looking to raise startup capital for the new business with
funding from family and friends should recognize the fact that debt is better than
equity financing. Unless, the entrepreneur’s business has a high likelihood of being
purchased, the entrepreneur should be weary of raising capital in the form of equity.
The entrepreneur of the new business should also provide the business investors
options for investing. Family and friends should be given different investment opportunities
that they can choose from. An entrepreneur who is starting a new business needs
all the capital that he or she can get, therefore, the entrepreneur should not give
family and friends a “take it or leave it” option.
An entrepreneur needs to make a verbal as well as written pitch even to family and
friends. The entrepreneur needs to make a verbal plan that outlines the core competencies
of the new business as well as its goals and targets. In addition to this, an entrepreneur>
needs to have a business plan that family and friends can refer to as and when they
feel like.
An entrepreneur of a small business also needs to be aware of the fact that raising
startup capital through investments of family and friends risk the chance of losing
a relationship. Some family members as well as friends could get upset if the new
business does not make a profit within a year or if it does not achieve its targets
on time. The entrepreneur needs to be aware of these hassles and should be prepared
to handle it professionally.