From the course: Entrepreneurship Foundations

Seed funding

From the course: Entrepreneurship Foundations

Seed funding

- They say to never talk about three things at a dinner table, politics, religion, or money. So imagine that you're talking about money at a dinner table that you can't walk away from. Yikes! A friends and family round of financing has the potential to be just that, a situation where you are tied not only socially, but in business as well. This type of financing is the most common form of funding for startups. It's usually also the easiest, as these contacts are already in your social circles. But just because you know them doesn't mean you shouldn't carry out best practices. Let's dive in to some basic dos and don'ts when it comes to friends and family financing. Do paper it up. You might trust Uncle Ralph with your life, but money is something not to be messed with. While you love and trust your family, it's best to legally document all lending, gifting, or investment of money into your business. While the legal documents might not seem necessary, it's an important step in keeping things clear and in writing. Don't take it personally. Not everyone, no matter how much they love you, might be ready to give you money. Remember that just because someone doesn't want to invest, even if they're wealthy and can afford it, doesn't mean they love you less. Other factors such as business deals or upcoming expenses could be at play that you just don't know about. It's a great chance to practice an important entrepreneurial skill, shaking off rejection. Do be clear about expectations and worst case scenarios. While everyone dreams about their idea taking off like wildfire, it's important to be clear with your early investors how your rate of growth will go and what, if any, monetary return they'll see out of it. You should also prep them on a worst case scenario that they might never, ever see this money again. If losing this money puts them out financially, it's important that they take that into account. Funding your company is important, but losing valued friendships or family relationships over business ventures, not worth it. Don't forget to keep them updated. Starting a business can be a chaotic time with endless lists of things to do and assignments to complete. However, make a point to keep your earliest investors in the loop. Maybe it's sending out a personal email quarterly or creating a group email list that you blast out once a month with updates. Whatever schedule you come up with, stick to it. Oftentimes these early investors don't just want to give you money, but their time and contacts as well. Keeping them in the loop can create amazing opportunities for them to help you along the way. Remember, friends and family can be a great low barrier entry financing option, but it doesn't give you the excuse to not dot your i's and cross your t's. Staying buttoned up with your finance is a must for every budding entrepreneur.

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