Every business needs investors. Many entrepreneurs reach out to friends and family for investments at the beginning stages of creating their business, but some may see investments from friends and family as an insignificant step.
In fact, the reality is that investments early on in the process, even if they stem from friends and family, will prove to be extremely important in getting professional investors to gain interest in your business.
According to Fundable statistics, friends and family compose the majority of an investor’s funding source, with total investments of $60 billion in new ventures in 2017. Your idea may be great, but convincing people about your business’s future success is the hardest step, and that requires getting funding from family and friends first.
In this blog, you’ll learn about the most effective strategies for gaining funding from family and friends so you can attract more investors as your business grows.
1. Treat Your Friends and Family Like Formal Investors
Many investors first seek out very close friends and family and casually discuss their business idea. While these people may be close to you and trust you with their money, you should treat them as if they are formal investors. Test your elevator pitch and what you’re going to say to each investor.
Ask them for advice to be prepared for the real run next time. Whether you are presenting to friends or professional investors you always want to be prepared. You should understand their reasoning for investing by getting inside their head and researching how people make decisions on their investments.
2. Logic and Passion Sells The Idea
Present your idea in a simple, comprehensible way that doesn’t overwhelm your potential investor. If you start throwing statistics in their face without explaining the reason for the vision, the reason for creating your business, and the need for your product, your investor will end up confused and less likely to give you money. However, integrating some statistics isn’t always a bad idea.
You want to show your investors that you are reliable and know what you’re talking about. Just ensure that you’re selling the big picture and not focusing on tiny details that can derail your investor’s attention. In addition, if you have a prototype, be sure to show your investors and give them an inside scoop into your business to make them feel valued. It’s important that you create a personal feel no matter who the investor is.
3. Give Financial Options and Explain How You Will Use The Funds
Your family and friends may not be finance wizards, and may not know exactly how much to invest in a startup. It’s your job to give them some options and then explain what each of the amounts will be used towards. Give context for any financial assistance that you are asking for, and create a formal agreement as well.
Making a formal agreement in the form of a contract is an important step. Don’t rely on empty promises or loose agreements. The road to creating a startup isn’t easy and you don’t want to lose supporters all because there wasn’t anything established in the first place. These steps will help you gain credibility and allow people to witness the amount of time, effort, and money you’re willing to put in to make your business a success.
4. Reveal Your Plan and Its Risks
Your investors are giving you their money, so you’ll need to be able to explain what you’re going to do with it. Walk them through any details about your business plan, budget, testing procedure for the product and sales, and plans for creating a website and an app.
However, on the same note, you need to communicate the risks. 70% of all startups fail within the first five years, so it’s important that your investor knows what they are getting into before making any contributions. While you’ll want to show investors how your business will reach success, tell them any obstacles your business may face, before promising anything.
5. Grow Your Network
Wealthy relatives can seem like an appealing investor, but it’s also important to reach out to those with plenty of connections. After successfully converting your friends and family into investors, you’ll need to start looking for other investors, such as bigger companies or influencers.
Ask your friends and family to connect you with anyone they may know in a related area. This is a better solution than using email or social media to reach out to untouchable investors. Yes, money is the end goal, but focusing on networking will help your business out in the long run.
6. Limit Investor Role in Business
Though your family and friends have invested in your business, you don’t want to tangle them into your business affairs. At the end of the day, they decided to invest in your business, and you should do whatever you decide to make it a success. Getting them mixed up in your business may lead to relationships breaking up. Roles within the company should only be delegated to people with the right experience and skills.
Starting a business and marketing a product is tough at first, but with the help of companies like SDI, your marketing campaigns will become successful in making your business grow. If you’re interested in starting your own business, growing your network, strengthening your brand, and attracting investors, call us at 408.621.8481 or email email@example.com for more information.