How can I approach my family and friends for investment?
What's the best way to approach your friends and family for start-up investment?
I’ve just finished my business plan and need to raise £18,000 for my idea. I want to approach friends and family for investment but don’t know how. Should I present it formally or take a more casual approach? Also, what’s the best way to stipulate that I want them to invest solely as financial partners as opposed to taking a hands-on approach with the business?
Nicko Williamson writes:
I am assuming that your friends and family have some knowledge of your plans to start a business, therefore I would suggest you assess who you think could be potential investors among them. Once you have a list of prospective investors I would suggest giving them a call or setting up an informal meeting. At this stage you need to be clear what you are looking for from them.
When you have met with the potential investors and discussed your plans then you should give them a copy of your business plan. It is always useful to get potential investors to sign an NDA (non-disclosure agreement) to protect any innovative ideas in your plan.
The business plan should detail the business and proposed investment you are seeking with information on the equity you plan to give away for the £18,000. In the business plan you should detail that you are looking for investors who will not be involved in the day-to-day running of the business.
Keep all communications with the potential investors relatively formal but friendly, being that your family and friends will know you well and probably be aware of your plans anyway.
Investing in a start-up is considered very high risk and many people will be apprehensive. Therefore I would suggest spending time ensuring your business plan is concise, you have some good (and realistic) financial projections and a viable plan to bring the product to market.
When the potential investors have had sufficient time with the business plan send them an email to see what their thoughts are, or pick up the phone. At this stage they will probably have some questions about your plan and you should be able to gauge their level of interest. Be very clear in your discussions / negotiations that you are looking for investors to take equity stakes and not for a partner.
At this stage you need to close the investment, but will need to be careful. As you are seeking family and friend investors they will need some time to consider whether they are comfortable making the investment. Make sure you give them enough time to digest the plan and ask any questions. Although your main priority is raising funds, you can be sure it won’t be at the top of their priority list, so allow more time than you think to complete the process.
Once you get your first offer of finance this will help the momentum of raising funds. People always feel more comfortable when others are investing alongside, so leverage this.
Nicko Williamson is the founder of eco-friendly car service Climatecars