How do I ask family to invest in my business?

Monday, November 24th, 2008

Dear Norm,
I’m only twenty-two years old, but I’ve been wanting to start a business for a long time. My passion is computers, and I’ve come up with a concept that has an incredible upside. I just need about $100,000 to make it a go. My father-in-law has access to that kind of money. The problem is, I have no idea how to approach him.

Dear Brandon,
Entrepreneurs are optimistic by nature, but it’s important to look at the downside risk as well as the upside potential, and let’s face it: there’s an inherent risk in borrowing money from in-laws. So first you need to ask yourself, What would happen if I lost all the money? If the loss would have serious personal ramifications, I’d look elsewhere. Business failure is tough enough without adding family trouble into the mix. But if losing the money would have no effect on your in-laws’ lives, if your family wouldn’t be torn apart, then it should be easy to approach your father-in-law. Just lay your cards on the table. Tell him you think your plan will work, but if it doesn’t, there’s a risk he’ll lose all the money he’s invested. Ask him if he’s interested and assure him that, if he isn’t, there will be no hard feelings. And remember there are other sources of capital around if your in-laws are not an option.
Yours truly, Norm

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How do I find investors?

Monday, November 17th, 2008

Dear Norm,
I need your advice about finding investors. If I have no money to put into a business, what else might I be able to contribute as a form of personal equity to woo investors? The only idea I have is to sign a promissory note.

Dear Dave,
If sweat equity isn’t enough for outside investors, I doubt that a promissory note will do the trick either. You’ll probably have to get some Rolodex funding first. By that, I mean you’ll have to start calling people in your address book, including close friends and relatives. Any money you raise from them will be seen by outside investors as money from you. By asking for money from friends and family, you’ll be taking a risk on your future relationships with them. That counts with outsiders who want to know you’re investing something important besides your time. Yours truly, Norm

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