Tips for conducting a friends and family round
Have a solid business plan
You may know your friends and family, but you still need to approach your pitch to them with some solid data. Have you got a concrete business plan? What numbers do you have to back up your venture?
Valuation
What’s the realistic valuation of your business? It’s hard to know at this early stage in the business, but your investors need some figures on how much they can expect to receive in return.
Be clear about the type of investment
Friends and family may gift you some money to invest in your startup. They may loan it to you, expecting you to pay it back (maybe with interest). They may want equity in exchange for the investment. Be clear about your investment type and what they will get from it.
Be realistic about how much investment you need
Create a plan for the next few months to determine how much you’ll need to boost your growth. If you ask for too much too soon, you may give away more equity than you want.
Loans
If you take a loan from friends and family, what are the terms for paying it back? It could be a risk as the repayments may affect your cash flow early on in your business.
Find the right people
Don’t ask everyone you know who has some spare cash to invest. Be strategic about who you ask. People with knowledge in business who can understand your goals are the best people to ask. If they can provide some input on your business, that’s a bonus!
Create terms sheets
Make the investment formal. Creating clear, legal documents for the investment will protect you, and the investor should anything go wrong.
Keep them informed
Your investors should stay informed about what’s happening, even if they’re friends and family.