April 21, 2021 Equity en_US When you’re starting a business and need money, your loved ones seem like an obvious choice. Here’s how to approach your friends and family for funding. https://quickbooks.intuit.com/cas/dam/IMAGE/A3nfMeWws/aeeadeb8e1f44b5b36a9fd570583049d.png https://quickbooks.intuit.com/r/equity/how-to-approach-friends-and-family-to-fund-your-business/ How to approach friends and family for funding
Equity

How to approach friends and family for funding

By QuickBooks April 21, 2021

When you’re searching for ways to finance your new business, it makes sense to turn to the people who believe in you most: your loved ones.

In fact, one 2020 survey found that 10% of entrepreneurs have relied on their friends and family to finance their businesses. While that might not sound like a lot, it puts loved ones ahead of other funding options like Small Business Administration loans and lines of credit.

Of course, asking for money can be awkward. You’re not asking a friend to spot you $10 because you left your wallet in the car. You’re asking them to invest in your big idea and support your ambitions, with no guarantee of success or a return.

There’s a right way and a wrong way to handle these types of requests. Here, we’ve created a step-by-step guide to asking your friends and family for help—with as little awkwardness as possible.

8 steps to ask your friends and family for business funding

The stakes are high here. Not only are you asking for a pretty big favor, but your friends and family would literally be vesting interest into your business. Taking a measured approach is key.

Move through the following steps in order, and you’ll tackle these potentially uncomfortable discussions with confidence and professionalism.

1. Consider your medium

First, it’s time to choose the right communication method to ask for an investment. The most common mediums you’ll use to ask for business funding are an email, phone call, or in-person conversation.

There isn’t a one-size-fits-all answer here—the best choice will depend on a variety of factors, like:

  • How close of a relationship you share with the other person (i.e., are they somebody you speak with frequently, or would an out-of-the-blue phone call seem alarming?)
  • Their own communication preferences (i.e., if they hate the phone, it’s best to try another route)
  • Your geographic proximity to one another (i.e., getting together in-person might not be an option)

You’ll have to trust your gut on the best method for you and the other person, bearing in mind that each has its advantages and drawbacks. Here are a few notable ones to consider:

Email

Pros:

  • Reduces nerves involved in a “live” conversation
  • Can feel lower-pressure to your recipient, as they have time to process your request before reacting
  • Provides time to think through your messaging and perfect your request

Cons:

  • Can feel a little cold and impersonal
  • Lacks an opportunity for real-time feedback and questions
  • Might lead to a delayed (or worse, nonexistent) response

Phone

Pros:

  • Feels friendlier and more personal than email
  • Provides a way to connect personally with people you can’t actually meet up with in person

Cons:

  • Lacks certain nonverbal cues like facial expressions, posture, and gestures
  • Many people don’t like talking on the phone—77% of people say they experience some degree of anxiety about phone conversations

In person

Pros:

  • The most friendly and personal communication method
  • Offers an opportunity to pick up on all nonverbal communication cues

Cons:

  • Isn’t always a possibility if you aren’t co-located
  • Can feel higher-pressure, as you and your loved one will be communicating face-to-face and in real-time

Ultimately, it’s up to you to choose the method you feel best about. And, keep in mind that the method you select could differ from person to person.

2. Personalize your approach

Regardless of which route you choose, it’s important to note that each interaction should be personalized. You shouldn’t be sending a single email with everybody BCC’d or reading from a templated and generic phone script.

As with any other type of business outreach, quality matters far more than quantity. Be prepared to make some friendly small talk or to connect personally rather than diving right in with a well-rehearsed spiel.

Part of this personalization process also involves considering your audience and your timing. Focus your efforts on the people who are the best fit for your business and are most likely to provide the financial backing you need.

Your uncle who recently lost his job? It’s not the right time to ask him to open his wallet. But, your friend who encouraged you to start the business and is highly connected and involved in your industry? They might be excited about the opportunity to come aboard.

Remember, personalizing is about more than starting with polite chatter—it’s about tailoring your entire delivery.

3. Keep it professional

Having that personal connection can make you feel more secure and familiar, which can go a long way here. But that’s not an excuse to be sloppy with your request. You should treat your friends and family as seriously and respectfully as you would any other investor. This should include:

  • Polishing your pitch and giving them the information they need about your business
  • Coming prepared with the necessary documents (such as a contract or agreement)
  • Communicating and conducting yourself in the way that you would with a professional contact

Behaving professionally with family or friends can feel a little unnatural, but it’s important. Not only will this help you prove you’re worth taking seriously, but it’ll also help you keep your personal and professional relationships separate.

4. Provide the necessary context

Your friends and family know you well, but they probably don’t know your business well. That’s an important distinction.

Although you already have a personal relationship, you still need to provide the important details of the investment opportunity—just like you would with any other investor. You should be able to address topics like:

  • The basics of your business, including your offerings, market size, and target customers
  • How much of an investment you need
  • What you plan to use the investment for
  • What your future business goals are
  • How your business plan supports those goals
  • How investors will be repaid

That last bullet point can be a bit of a sticking point, especially if you aren’t familiar with how investment deals are typically structured. When it comes to your loved ones, you can approach their investment in one of three ways:

  • Equity: They exchange a sum of money for a certain equity stake (or percentage of ownership) in your company.

Example: Your friend gives you $15,000 for 5% equity in your business.

  • Loan: They provide a sum of money as a loan, which you pay back over an agreed upon period of time (often with interest).

Example: Your friend gives you a $25,000 loan to be paid back over three years with 5% interest.

  • Gift: They offer you a sum of money as a generous gift, with no expectations of return or payment.

Example: Your friend gives you a $5,000 gift to support your business.

There isn’t a default right answer. Much of it will depend on what you and your loved one are comfortable with.

The key takeaway is that you should know exactly what you’re asking for—and how much you’re willing to negotiate—before initiating the conversation.

5. Make a clear request

Asking for money is uncomfortable, and many people prefer to talk around it.

You need to summon your courage and directly ask for what you’re looking for. Otherwise, you run the risk of your loved one thinking you’re sharing about your new business, without any expectations.

Your email or your pitch needs to include a strong call to action. This could look something like:

  • Are you interested in investing in my new business?
  • I’m looking for an investment of [amount] in exchange for [return]. Would you like more details?

We’ll share a template you can use to get the conversation rolling below, which includes a clear next step for your recipients.

6. Give an easy out

You want funding for your business, but that doesn’t warrant you pressuring, trapping, or guilt-tripping your loved ones into digging into their pockets. Not everybody is going to be able or interested in investing in your start-up.

Keep the conversation low-pressure by giving them an easy out and an opportunity to say no without any hard feelings.

For example, offer a simple one-liner like, “Of course, absolutely no pressure if this isn’t something you’re interested in.” You’re providing an opening for friends and family members who don’t have the means or interest in investing, but who don’t want to disappoint you.

Of course, whether or not a person chooses to provide you with funding shouldn’t have an impact on the personal relationship you share with them. Mixing loved ones and business is always complex, so make sure you’re ready to compartmentalize accordingly.

7. Establish ground rules

If they’ve agreed to help out, remember that blurring the lines between personal and professional relationships can get tricky. It takes a conscious effort to make sure they don’t mix. After all, you probably don’t want to have to give a detailed recap of your business’ finances at the Thanksgiving table.

For that reason, it’s helpful if you and your loved ones set some ground rules right from the outset. This can include things like:

  • When and where you’ll talk about business matters
  • Who else you’ll share your business relationship with
  • What communication methods you’ll use to talk about business
  • How you’ll resolve business-related conflicts

Ironing all of this out can seem like overkill, but it’s undeniably helpful in setting you up for a positive relationship—both personally and professionally.

8. Prioritize frequent updates

Like any other investor, most of your loved ones don’t want to hand over their hard-earned money only to never hear how things are progressing.

If they provided money as a loan or in exchange for equity, keep them in the loop on how your business is doing. Ask your investors what frequency they prefer, and then provide regular updates on that agreed-upon schedule.

If money was offered to you as a gift, then these updates aren’t as important. However, it’s still courteous to share occasional updates with your loved one so they can see how their gift contributed to your business’ growth.

Not sure what to say? Try this template

You know the steps you need to cover, but you’re still stuck and intimidated by exactly what to say. How do you start the conversation? How do you make the request?

That’s where this email template comes in handy. It will help you get in touch with your friends and family with a lot less nail biting. As with any template, make the most of it by adding in relevant personal details.

Subject line: A quick update about my new business

Hey [Name],

I hope you’re doing well!

I’m excited to share that I’m in the process of starting my own business, [Business Name]. It’s a [type of business] that serves [target customer] with [products or services].

I’m securing funding to cover some of my start-up expenses like [expense] and [expense], and I’m summoning my courage to approach some of my loved ones to see if they’re interested in investing.

Would you be interested in receiving more information about investing in this business?

Please know that I recognize how uncomfortable this type of request can be, and there’s zero pressure coming from my end. If this isn’t the right choice for you, there are absolutely no hard feelings.

Let me know if you have questions and, either way, I’m looking forward to catching up [when/at] [place or time you’ll connect again].

[Your Name]

You don’t get what you don’t ask for

We won’t deny it: Asking your friends and family to invest in your business—whether it’s a brand-new startup or an established company that needs a boost—is hard conversation.

Yet, when your business needs capital, the ones who have always believed in you and supported you most seem like the obvious choice.

Rest assured that there’s a way to broach the subject with your loved ones that won’t damage your relationships or cause unnecessary tension. Use this as your guide to ask for what you need—without burning bridges.


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