4 Rules to Keep in Mind when Fund Raising Through Family and Friends

Our family and our friends are usually the first people we go to when we need funds. This is typically because they are the ones we can count on when we need it. However, soliciting money from your loved ones can be a risky undertaking. Here, we provide four rules to keep in mind when fund raising through family and friends.

1. Decide what you are raising. Are you requesting a gift? A loan? Equity? You have to be absolutely clear about the terms so that you are getting what you need on the receiving end but also clarifying what they get (if anything) in return for their funds. If you are receiving funds as a gift, be sure that they are aware that you are not paying anything back. If you are receiving a loan, make sure that there is a clearly stated payment plan for when you are paying them back. If it is equity, make sure these terms are written out as well so that they receive what they deserve based on your profits.
   

   when fundraising for friends and family, we have to make sure to do these things.

2. Put it in writing. Family and friends should receive a contract that is comparable to what an angel investor would receive. Contract templates are easy to find online, and even easier to input all of your requirements and make it your own. You not only get to have everything on paper, but you are also establishing the fund raising as a significant and legitimate activity for your business. As with any written document, it’s good to have your respective lawyers review the documents prior to signing.
3. Be honest throughout the entire process. Risk is probably the biggest factor to communicate to your friends and family when fund raising. They need to know what they are getting into, especially if they have not invested before. When reviewing the business plan and the financial needs, make sure that your investors understand the possibility of failure and the amount of risk that they have to losing everything that they contributed. Without these caveats, a poor investment could also lead to a damaged relationship.
4. Bring in a third-party. Because of the relationship between family and friends, people live to give and sometimes even more than what’s required. This is why it is smart to bring in objective, third-party advisors to sit-in on conversations and negotiations so that they can provide logical input, without the emotional connections between family and friends getting in the way. Sometimes it’s necessary to have someone provide input, whether good or bad, so that in the end your investments, and even your relationships, are protected.

With these four rules, you will be prepared for a round of fundraising with your family and your friends. Often this type of fund raising is discouraged, but if you utilize the above rules, you could work towards your professional goals, but also protect yourself and your loved ones in the long run.

By: ParadigmNext https://paradigmnext.com.com

Google+: https://plus.google.com/+ParadigmNextChicago

ParadigmNEXT, Inc. is a digital agency headquartered in Chicagoland. We provide branding, identity, integrated marketing, social media strategy, art direction, web-design & development, startup incubation, commercial video production, product development, and commercial storefront development services to a wide array of clients ranging from bootstrapped startups to successful longstanding companies.