Raising Capital From Friends And Family

By Joel Block

The single most frequent question I receive about raising capital is to raise capital from friends and family. Of course, people want to know where to get big money too - but you have to learn to walk before you run, so I have put together a beginner's guide to successfully raising the money you need to launch or grow your business from people who are close to you.

This will be presented in 3 simple parts. Please let us know how it helps you by writing comments at the bottom of our blog. Shortly, we will make all of these available in an e-booklet. If you need any help, please call our office.

Overview

When trying to raise money for a new venture, you'll probably first go to friends and family (i.e. sometimes called "family and fools"). The following material has been prepared for entrepreneurs who will be going to this group. However, if you're calling on your grandmother, these rules will probably not apply.

The Bad News

Access to capital in the United States is not a constitutional right. Unfortunately, many people will simply not get any.

The Good News

If you do it right, money will flow your way. But do you want to know the $64,000 question? Here it is: What does it mean to "do it right"? Follow the comments below for an overview of how the fundraising process works.

Seed Capital

The very first money you put into your deal is called seed capital. I get numerous requests for seed capital because someone has an idea that could be great if they just get some money. Only someone who knows you - and who actually knows you very well - is likely to give you seed capital. Strangers and outside investors need to see proof that you have a good concept that merits their investment. You still need a plan for your "insiders" but the requirements are diminished by how well they know you and yet again by how much they love you. Outsiders are not your target for seed money.

The Golden Rule

At all times, treat your friends & family with the same level of respect that you would treat any outside investors. That means you want to have a strong business purpose, have a good plan, ask for an appropriate amount of money and offer a fair return in exchange for any investment.

Plan your Business

It's critical that you plan your business concept before you speak to anyone about asking them for money. That doesn't mean you have to create an investment grade business plan complete with financial statements, documents and details, but you do need a good outline of what you're going to accomplish and how you plan to do it. You'll need this because it creates credibility with the people who you're calling on. Even though these people will not "rake you over the coals" in the same way that a stranger would, they still want to know (and they deserve to know) that you are thinking clearly about exactly what you want to accomplish.

Look for Joel's next segment later this week.

About Joel G. Block

Often dubbed a "Growth Architect" by his clients, Joel Block advises companies on explosive growth strategies by driving revenue and sales. Well known in the capital markets, Joel is a successful entrepreneur, speaker and advisor. To bring Joel into your company, please visit www.joelblock.com or www.growth-logic.com.