The Advantages and Disadvantages of Friends & Family Funding
A startup typically goes through several rounds of funding from different investment sources as it expands. One of those sources is the “friends and family” round – one of the most common sources of early funding for entrepreneurs. In fact, most professional investors will expect that you have raised some funds this way in your early stage, according to Entrepreneur Magazine’s Martin Zwilling.
When I was planning to launch my business, USI, I took a long, hard look at the advantages and disadvantages of doing a friends and family round of financing.
Advantages of Friends and Family Your friends and family already know you very well – and you know them
They will listen to your pitch because they care about you
They are inclined to say, “Yes.”
They can give you the time to build your business on your own schedule
They will let you develop your vision into something others will recognize and value
You will be set up to hit major milestones and raise the next round of funding from professionals at higher valuations.
Disadvantages of Friends and Family Your friends and family may know you too well
They may not be able to add value because they may not understand your business
They may not appreciate your entrepreneurial drive
You will feel highly responsible for any losses they may incur
You may put the people you love best at risk, if they are giving you a significant portion of your savings
You may damage close relationships.
Source:
http://thepurposeisprofit.com/2015/04/29/the-advantages-and-disadvantages-of-friends-family-funding/
