Raising capital from friends and family

The single most common question I received about the capital raising is to raise capital from friends and family. Of course, people want to know where the money is too great - but you must learn to walk before you run, so I put together a guide for beginners with success by increasing the money that you need to start or grow your business from people who are near you.

The Bad News

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

The Good News

If you do it right, the money will flow your way. But you know the $ 64,000 question? Here it is: what "doing well"? Follow the comments below for an overview of how the process works to raise funds.

Seed Capital

The money you put into your first deal is called seed capital. I receive many requests for seed capital, because someone has an idea that would be great if you just get some money. Only someone who knows you - and who actually knows very well - is likely to give you seed money. Foreigners and foreign investors need to see proof that you have a good concept that deserves their investment. You still need a plan for your "experts", but the requirements are decreased by how well you know and once again how much they love you. Outsiders are not your goal to seed capital.

The Golden Rule

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

Organize your business

It 's important that you plan your business concept before speaking with any of them asking for money. This does not mean you have to create a complete business grade plan investments with financial statements, documents and details, but we need to get a picture of what you want to accomplish and how you plan to do so. You will need this because it creates credibility with the people you are calling. Even if these people do not "rake you over the coals" in the same way that a stranger would, they still want to know (and deserve to know) that you are thinking clearly about what you want to accomplish.

The use of funds

One of the most important questions that any investor wants to know "what you use this money?" You must be able to demonstrate that they have a serious goal of business for the use of money. And by the way, taking a salary for yourself can be just a small part of the social purpose that is waiting to hear articulate. They may find it appropriate for you to take a small amount of money while you are developing the project, but do not want to know that 80%, 90% or 100% of the money going to fund your lifestyle instead of going in business growth. You must be able to document that you will use the money in order to grow the business and get to a place where it can be self-sufficient, or where you can raise even more money by outsiders in the future.

Gains and Payback

The main reason why an investor puts money into a business is how they get that money back, and much more. A person who does not have a normal relationship with you may not have exactly the same expectation of a stranger, but still expect to make a serious effort to return their capital and much more. It 'important for an entrepreneur to demonstrate that the plan for the company that could produce more money than the amount that was invested. The business plan must show all the mechanisms that are fundamental to making this happen.

What is the problem?

It is important to provide a huge amount of details to friends and family investors with regard to your business plan at this level. However, it must be demonstrated that the community has a problem and that you have a solution to address this problem significantly. All companies are based on solving problems that people have, and be paid for such solutions. Your task is to show that you have great control of this area.

Evaluation

The more difficult question to answer is also the one that opens up more. Entrepreneurs and investors want to know which part of the company for the investor gets his money. Since the company is usually new at this point and very little value was created beyond the same idea, establishing a value is not very scientific. It is rather how well you can sell and to keep my money. The bottom line is that you want to increase the minimum amount when the company is worth very little. On the contrary, as a result, we want to increase more when the company that much, because the money that makes it less expensive.

How Much is Enough

Friends and family for a round, the amount that the entrepreneur should ask will vary according to business needs, but the goal is to take the less is needed because the business is worth little, you have to give the most. I usually see first round raises the amounts ranging from $ 250,000 to $ 600,000. Although, sometimes for the first raise small donations can be as small as $ 75,000.

The purpose of money

In the early stages of business building you need to focus all your energy to get your business to the "next level". This means that you are organized to raise money to grow the business in a place where it is self-sufficient and generating cash flow. There are many ways to define this, but the bottom line is you have to spend money "thinking" about the project. You will get others who are experts in thinking start-ups also. Need a perfect strategy. Need documentation experts. Need large financial projections. Need legal materials. All this is expensive so in addition to any financial needs you have identified for the new "baby", make sure to put a little 'aside for these general elements. Good planning and documentation now let you enter in the long run.

The Four Questions

If you want to create a brilliant plan business - for a real business that will make real money, ask a few questions and to document carefully the answers to them:

What is your vision for the project? What do you want your business to become?

Which problem solves your business? Describe the problem in detail very careful. Who has the problem? How big is the problem? What happens if you do not solve the problem? Who else can solve the problem?

How does the address of your product, service or invention, the problems you have identified?

The world needs this product, service or invention?

Creating Momentum

Art for a departure from the earth is to create momentum out of nothing. It 's difficult but mandatory if the company is about to take off. Start of small dimensions. Accomplish something. Parlay your success. Make something different. Parlay that second win. Set another goal. Accomplish this. Continue to parlay each success no matter how small, it will eventually add up to a success which is surprisingly large.

Can a Stranger raise capital for you?

They are regularly asked to raise money for start ups that have very little track record and very little construction behind. It 'a rare situation that a stranger - or an outside investor - put the money in your business until you get a series of achievements that can review and confirm. For this reason, the creation of momentum is so important. If you set a goal and then reach the goal - no matter how small - creates investor confidence that the employer can and will actually accomplish what he or she says that you have set out to do. This is a healthy model that will begin to set up for raising a lot of money. But this is a sequence of events for another day.