Raising Money
How to Ask Family and Friends for Start Up Funds
By Joanna Taylor
Dec 28, 2005, 16:20

After you and your credit cards, friends and family are the next resources you'll tap to funds your start-up business. While it is always awkward to ask those close to you to risk large sums of money in a new or growing venture, here are some tips to consider when asking family and friends for start-up funds:

It’s likely that at some point you’ve been on one end or the other of an attempt to find funds for a start-up business. We all understand how awkward it might be asking those close to us for large sums of money. In fact, we don’t have to actually experience the act of asking for money to know that it could easily cause contention and frustration, and even ruin precious relationships. However, there are approaches that minimize the stress. Some tips on effective and painless ways to ask family and friends for start-up funds:

• Present your business plan in a cogent and articulate manner and be prepared to answer questions. Your business plan should be the foundation upon which you build trust.

• Do your research. No one wants to get involved in a start up company––especially financially––without feeling there is a real chance at success.

• Never present your business as a get rich quick opportunity. It's unrealistic, and it will undermine your credibility.

• Follow through in all you do. If you are an unreliable source in many areas of your personal life, chances are that your family and friends will expect the same amount of unreliability in business, no matter your enthusiasm.

• Be serious. Showing others that you are serious about your endeavor helps them to see that you have looked at all angles of your potential start-up, both good and bad.

• Know how and when you will repay your investors. You are asking for a business investment, not a donation, and your friends and family investors will want to know when they can expect to be repaid. If you are asking for a loan, what are the terms? What will happen if you can't repay the loan? If you are asking for an equity investment, when can they expect repayment?

• Be understanding. If your family and friends feel uncomfortable, ensure them that this does not change your relationship if they choose not to give you the funds. And, don’t let it.

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