Friends And Family Investment Agreement
Not all startups will follow a friend and a round family or angel, but some startups can do both, and do it several times. Future entrepreneurs should monitor them. In some cases, you may want to offer equity in exchange for financial support from family and friends. Don`t make the mistake of having a weak business plan, even if you`re dealing with friends and family. One of the drawbacks when individuals invest in you and not in your business is that they don`t question your business plan in the same way. While this seems to do less work for you, that`s not a good thing. Upside: This is your best chance to win money to start the business. If your friends and family don`t want to give you money, who will? If one or some of them are stuffed with business, better yet. When attracted as an investor, she becomes motivated consultants. In addition, they will probably be more forgivable than outside investors regarding the ups and downs of your business. Although it is often quite informal, funding for family and friends is in a few common types. They share certain characteristics with other investment methods, such as peer-to-peer lending, crowdfunding and angel investment.
Whatever the approach, when your friends and family are considering investing in exchange for equity, it is your responsibility to detail the associated risks. Startups are risky companies, and as founders, you also risk damaging your relationships if your investors are not properly trained in the beginning – and as a founder, he will probably fall on your shoulders to offer that level of honest initiation to investors. However, it is also common for friends and family investors to accept an interest-free agreement simply because they want to see you succeed. Collecting money from friends and family has several advantages. You are often more likely to invest personally in yourself, while a larger investor might ask to see a well-established company. You can also avoid the complex compliance requirements that come with other stock sales. Keep in mind that equity investments are commonplace later on. Therefore, if you use your family and friends` investments as a pre-seed source of financing, don`t be fooled with little or no „alternative“ equity for subsequent institutional and angelic investors. As with any loan, a loan for friends and family businesses can include an interest rate that determines the total amount you will repay. However, there are agencies such as Gust, which will provide companies with a pre-seeded valuation.