The first step of any endeavor is the hardest one to take. It is particularly true when it comes to starting a business, especially a first one. Investors would rarely entrust a newbie with their money and taking a loan from the bank would be highly risky for you. This is when aspiring entrepreneurs turn towards FFF - friends, family, and fools.
So what are the pros and cons of relying on such investors?
These are the people that find it the hardest to say 'No' to you. They are also usually less investment savvy than anyone else you'd turn to, so they are easier to convince that your idea is great. And even if they see that it isn't, they wouldn't want to let you down and would support you no matter the circumstances.
They might have unrealistic expectations. Having heard of AirBnB's success they might anticipate from you to build a multi-billion dollar company. Make sure to thoroughly explain to them what your goals and chances of achieving them are. So you still need to work on your PnL and have clear financial projections.
They are easy to reach. Most institutional investors will not pay any attention to you unless you find a common acquaintance to introduce you to them - and it would be best if it were a founder they've already invested in. Getting them to the negotiation table takes a lot of effort and persuasion. Your FFF on the other hand are always one phone call away - as long as you don't disturb them too much with your crazy ideas.
Taking money from closed ones will inevitably affect your relationship to them. Imagine seeing your business burn to the ground - altogether with the tens (or hundreds) of thousands of dollars that your relatives and mates entrusted you with. Such a scenario (which is more likely to occur than the positive outcome) could lead to a lot of awkward gatherings, phone calls and dinners. Even if they don't blame you for it, you'd most likely feel deep shame whenever your paths cross.
No excruciating term sheets. Naturally, seasoned investors tend to look after their own interests first so you could easily be left off with less than you bargained for. VCs usually insist on getting Class A shares, which would allow them to vote on all essential matters. They also tend to become preferred stockholders with liquidation preferences - meaning that they have the right to sell their equity before anyone else. Luckily, your uncle or your pals from college are unlikely to put you in such a tight corner when they confide you with their money.
No worthwhile feedback. Since your investors want you to succeed, they'd oftentimes mentor you in order to fill the gaps that you may have when it comes to business development. Your friends and family most likely have no experience in scaling startups so even if they try to, they wouldn't be able to provide you with solid advice. Same goes for networking. VCs could easily help you contact more potential investors for your next round if you are reaching your pre-set KPIs and your future seems bright. Your household or your buddies on the other hand will be way more limited in this regard.
All in all, turning towards family and friends for financial support does have its positives and negatives. Carefully think through this option's possible outcomes before you decide to pitch your million-dollar idea to them. Even better, get in touch with BattlePass Studio first and see if we can bring your idea to life together.