Being the Smartpreneur that you are, we know that your aim is to take your business to almost unimaginable heights and to do that you need to start small. Part of that entails selling to your loved ones first.
People closest to you have to buy your idea or be ready to invest, which in turn proves to business investors out there that your start up is worth it. As an entrepreneur you also have to show that you believe in your venture and its prospects. You have to invest some money – no matter how little – of your own in order to show credibility to others.
Now, how do you go about getting family and friends to invest in your business?
1. Pitch your Idea
Yes, you have to pitch your business idea to your family and friends. They are your investors at this point. It doesn’t matter if they are not professional investors but they are investors as well right? They have to know where they are putting their money. It might not be in a formal setting, it could be over drinks or dinner. You might not necessarily have a 60-page business plan document; you could draw up a 5-10 comprehensive plan. This document should summarise your idea along the lines of what you want to do, how you will do it, money you need to start, how the money will be used. Don’t forget to add likely risks, challenges and competition. In a nutshell, make them understand your business and see reasons why they should invest in it.
2. Documents and Communications have to be business-like
We know you’re dealing with family and friends. Being informal is almost unavoidable, nevertheless, you need to try not to be too informal; note that this is business and not all fun and games. If they eventually agree to invest, some forms of documents might be needed for business records purposes.
3. Make sure you have a business plan
You know you will not get a bank loan without a solid business plan. Same treatment applies to your friend, your rich relatives or parents. You need to have a plan to draw them in to invest. The plan should include your financials and metrics. Make your business objective clear and how it will be a profitable venture. Share the story behind your business, highlight the high points of your business so far if it has kicked off already, and tell them the model you will use to achieve success if you are yet to start. The summary of this point is that you should do your homework and research regarding your business and sell that business to them!
4. Say how much you need
Whether you are asking for loans from family or business investors, you have to be logical and strategic. You could make a few months plan – say six-month plan – and determine how much money it will cost to purchase all the necessary assets and resources needed to facilitate the business. This way, it is encouraging for people to re-invest when they see good results at the end of the initial proposed plan period.
5. Payment/Reward plan
Like a business loan, plan to repay your family and friend investors. Whether they ask for a pay back or not, just plan to pay everyone back. This could come in different forms. It could be that you actually pay back with interest or offer equity in your company. There should be some kind of reward to family and friends who invested. Sometimes, this depends on the initial agreement when asking for a loan. Your payment plan should be included in your business plan from the very beginning. Your business plan should be all encompassing. Investors should clearly see your business in and out.