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close dona you nave with your new financial supporters can add to the stress it your venture does not succeed quickly. You might feel more of a responsibility to give your loved ones a positive return on their investment, or at least to pay them back the money they lent you whether with or without interest. In the worst cases, if your business fails, you risk not only your personal savings but also potentially a large amount of money from many of the people who are closest to you.
D. Whereas a professional investor will be able to absorb this risk by spreading their
investments across multiple different ventures, it is more likely that family and friend investors have put all of their money into your project. That means that if you fail, you and a lot of the people around you could be left out of pocket by a large amount, which can put a lot of strain on personal relationships and damage your quality of life too.
E. Although it's often quite informal, family and friend funding falls into a few common types. Two of the main kinds are business loans and equity funding. You promise you will repay the loan with interest or give an equity stake to your friend or family member as a thank you for their support. In the very early stages of your business, it can be hard to know how much to promise. An equity stake is a scalable way to offer your supporters a fair share of any future profits, but you might not want to give away too much of your
company as early as the pre-seed funding phase.
1. Different from other investors who choose to spread their risks, family and friend investors put their eggs in one basket.
2. This kind of funding is not as formal as funding from banks, business angels or strangers.
3. Equity funding and business loans are the two main types of this funding.
4. The close relationship with the investors can create more pressure on you.5. The case that your business fails will affect both your personal relationships and life quality.
6. The family and friend investors may not ask for extra money in return.
7. At the time you raise money from friends and family investors, your business plan might still be incomplete.
8. In this kind of funding, you may raise investments from several investors.
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