The single most frequently asked question I get about raising capital is raising capital from friends and family. Naturally, people want to know where to get big money too but you have to learn to walk before you run, so I’ve put together a beginner’s guide to successfully raise the money you need from people close to you to start or develop your company.
In the United States, Bad News Access to capital is not a constitutional right. Unfortunately a lot of people just won’t get any.
The Good News If you do it right, there will be money flowing your way. But want to ask the issue about $64,000? Here it is: What does “doing it right” mean? To get a summary of how the fundraising process works, follow the comments below.You may want to check out Liberty Capital Services LLC for more.
Seed Capital The very first money you put into your investment is called seed capital. I get a lot of demands for seed capital because somebody has an idea that might be perfect if they just get some money. Only someone who knows you and really knows you very well would probably give you seed capital. Strangers and outside investors need to see evidence that you have a good concept that makes their investment worthwhile. You still need a strategy for your “insiders,” but by how well they know you and again by how much they love you, the criteria are reduced. Outsiders aren’t the seed money you want.
The Golden Rule Work with your friends & family at all times with the same level of respect you would handle any outside investors. Which means you want a strong business intent, a good plan, a reasonable amount of money and a fair return in exchange for any investment
Plan your company Before talking to anyone about asking them for money, it is important that you plan your business idea. That doesn’t mean you need to create a business plan of investment grade with financial statements, documentation and information, but you need to have a good outline of what you’re going to do and how you’re planning to do that. You’re going to need this, because it builds credibility with the people you call on. Although these people won’t “rush you over the coals” in the same way a stranger might, they still want to learn (and they deserve to know) that you’re clearly thinking about just what you want to accomplish.
Use of Funds One of the most important questions any investor wants to know is “what are you going to use this money for?” You need to be able to prove you have a serious business reason to use the money. And by the way, only a small part of the business purpose that they expect to hear you articulate can be taking a salary for themselves. When designing the project, they may find it appropriate for you to take a small amount of money, but they don’t want to know that 80 percent, 90 percent, or 100 percent of the money will finance your lifestyle instead of growing the business. You need to be able to document that you are going to use the money to grow the company and get it to a point where it can either be self-sufficient, or you can collect even more capital from investors in the future.