investmentI am a programmer and one of my friend who is a good sales guy, we both have planned to start own business.
We both don’t have own money to invest but I am offered by a family member.
Please guide from your experience:
Otherwise in order to generate some revenue, we have to take some projects in parallel of the regular jobs and working on them after office hours. Currently we have got two projects but I personally see it difficult to allocate time as I see more leads are coming too.
Investments from family and friends are a great way to kick start your startup. The problem is that startups have a very high failure rate (some say 9 out of 10 startups fail). Depending on the financial situation of the family member, having their investment go down the drain can create tension between you and the family. Since you are in a technical field, the family member may not fully understand your line of work, the risks and your explanation of why it failed. Remember that even if the startup fails, your family member would still be around and you would have to face him/her.
If the family member is fully aware of the risk and is still willing to invest, that may help the situation. Even so, keep a formal investor agreement so that they know their rights and you know yours and it would help solve disputes. If they are unwilling to take the risk and insist on reclaiming their money, a small no interest loan just to cover the cost of projects could be an alternative.
It is always better to scale up with what you have available. That way, you remain in control, maintain equity, have less people to answer to and have the flexibility to take calculated risks. And in the case the startup goes bust, you wouldn’t feel bad about loosing your family members money and you can restart another startup quickly.
If you need investments just to cover working capital for your projects, you can also ask customers for some advance to cover your costs and for incremental payments as the project proceeds until you build sufficient working capital to roll projects. If the customers like your product or service, some of them are very understanding of the nature of startups and wouldn’t mind. Some founders keep their day jobs or take part time jobs as they build their startup.
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