Friends or family

When you start raising money for your company, one of the first type of investors that you’ll run into is called friends and family. They’re actually often called friends, family, and fools because only fools would invest in very-early-stage companies at the beginning. But that’s tongue-in-cheek. The friends and family dynamic are people who believe in you and are investing in you to get the business up and running. And that’s important because, as a start-up entrepreneur who’s raising the first capital for your business, a lot of times the people that are going to be most supportive of you are not necessarily that interested in what you’re doing, but they’re interested in supporting you.

Now it’s important to treat your friends and family in the same way that you would any professional investor in the context of raising money from them. They’re supporting you, but you want to make sure they’re getting an appropriate deal for the stage that you’re at. And you want to make sure that what they’re investing in is something wherein the upside case where things are successful, they’re going to make an enormous amount of money. And in the downside case where things don’t work out, you won’t be embarrassed by the way that you treated them in terms of the context of the investment.

Now failure with friends and family can occasionally make for some awkward Thanksgivings; but at the same time, as long as you’re being respectful and thoughtful of those early investors, most of your friends and family will be thoughtful and respectful whether or not the company’s success. There are some magnificent stories of outcomes from these types of friends and family investors.