Question: What is one rule you should always have in place before raising money from family/friends?
Expect the Worst
"Don't do it. But if you do, be willing to lose them as friends or family. Seriously, expect the worst. Assume it won't pan out, assume they won't get the money back. Where would this put you with those people, and how would it effect your relationship with them?"
@FuelOnline
Communicate Risk Honestly
"One of the most important things to communicate is the degree of risk. If the contacts you're talking to haven't invested before, it's very important to educate them on the failure rate of early stage startups and the likelihood that they'll see a return. Without that disclaimer, relationships could suffer if the investment doesn't pan out the way you hope."
@martinawelke
Have Objective Third-Party Advisors
"All parties should have objective professional advisors protecting their interests. Because of the relationship, one or more parties may be inclined to give more than is appropriate, which will pressure the relationship when problems arise. By also having an arms-length negotiation, professionals can protect their client's interests and even the relationship by acting as the bad guy when necessary."
@MintonLawGroup
Have a Contract
"Give family and friends the same contract and terms you would an angel investor -- there are widely-used templates available for free online. One benefit is that you get all the terms down on paper, just like in any situation. But more importantly, you're communicating that this is a serious business relationship. Tell Uncle Jessie that he should run the agreement by his lawyer before signing."
@johnrood
Only Accept Money They Can Afford to Lose
"You have to be upfront and completely transparent on this point. It’s your responsibility to make sure that family members fully understand the risks before parting with their money. And if they can’t afford to lose money, do not accept their investment. "
@EarlyGrowthFS
