Every entrepreneur knows the importance of a high venture capital in a startup. Angel funding is quite popular among start-ups but there is phase before that. That stage is also known as pre-angel funding. We have discussed about it in the last post. So we have learned that the pre-angel funding is basically the money that comes from friends, family and er…fools (FFF).
What is the greatest RISK while getting funds from Friends and Families?
Before turning to anyone else, we first turn to our closest members to accrue funds for a venture. It is only natural. Moreover, most angel investors require you to show them some progress before they put in money for your startup. So the seed money almost always comes from friends and families. They are also humorously known as fools when they give you money for a startup – that is with reason though. Statistics show that 8 out of 10 new businesses fail within the first three years.
There are also a few risks associated with it.
The greatest risk is your relationship. If your business fails- and mind you 80% of new businesses fail within their first year. You can end up losing your friend or create tension with your family members, especially, if they are not immediate.
There are many cases where a simple case of pre-angel funding gets into a big legal battle. Sure, you may assume them as worst case scenarios but, the reality is that daily there are many entrepreneurs who get into an emotional wreck because of pre-angel funding.
This post is not a deterrent that is trying to remove an alternate finance option. In fact, this is more of an awareness post. Sure, there is a high-trust quotient with your close friends and family. But it has been proven through the ages – when money gets involved, everything changes.
Let me know your views below. Thanks!