Deciding Who to Ask for Money
“If your face was on the ten o’clock news, how many people would look up and say, “I know that person!”? The list is probably longer than you’d think–and includes more prospective investors than you’d imagine. They need not be millionaires, and they need not be loyal relatives.
If you’re like many small-business owners, you first reaction to the topic [of raising money from friends and family] may be, “But I don’t know enough people with money, much less people I’d feel comfortable asking for money.” Don’t let that initial reaction stop you. Asking people you know to pitch in on financing a new or growing business is anything but a radical idea. Before anyone ever heard of banks, informal, person-to-person loans were the way many businesses got started–and the way many investors made money.
Although modern banks have reduced the need for private financing, they haven’t supplanted it. With approximately five out of every 100 adults in the United States having invested privately in someone else’s business within the last three years, it’s clear that private financing remains alive and well. It is, however, often hidden behind the doors of the family home. A whopping 42 percent of private investors are close family members, such as a spouse, sibling, child, parent or grandparent. If you add in the 10 percent of investors who fall within the “other relative” category, that’s more than half of all private investing coming from someone related to the entrepreneur.”
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