How to Ask Family and Friends to Invest

You can hit a lot of roadblocks when raising capital for a new business venture. No collateral? Then banks won’t lend. No first-class management team? You can forget venture capital.

Sometimes the best way to fund a startup is to tap the people closest to you—your family and friends. While they might not have millions to pour into your entrepreneurial dream, their contributions can provide enough to get to the next step. In fact, 31% of small business owners say they are likely to borrow money from family and friends, according to a 2010 Small Business Watch survey completed by Discover Financial Services.

But don’t expect your loved ones to greet you with open wallets. Here are four tips on how to ask your family and friends to invest—from fellow entrepreneurs who have done it successfully.

Treat your family and friends like important investors.

How would you pitch your business idea to a venture capital firm, or group of angel investors? Probably through a PowerPoint presentation and solid business plan with market research to back it up. You should do the same for family and friends, says Joseph Satto, who successfully raised $75,000 from his family and friends for his New York City-based online startup, mySomeday.com.

Satto’s business plan clearly defined his business concept, as well as how he planned to use any investment funds. He also asked every potential investor to sign a basic confidentiality agreement to protect his idea.

Manage expectations.

Since your family and friends want to see you succeed, they’re more likely to invest than an outsider. But be honest with them about their potential return on investment—sugar-coating their risk could jeopardize your relationship down the road.

Valarie Moody, who raised $600,000 from family and close friends for her Countryside, Ill.-based online video production company, Fodeo, says to specifically alert them of your expected burn rate—or how fast you’re running through cash—and how long it will take your business to turn a profit. “Managing expectations helps avoid conflict down the road,” says Moody.

Consider alternative investments.

Some family members or friends may simply be uncomfortable with traditional financing routes, like equity investments or loans. That’s what happened to Doug Bates, who owns Apredica, a research lab company in Watertown, Mass.

So instead of accepting their cash, he allowed family and friends to invest alternatively: by buying the expensive equipment he needed for the lab, and lease it back to the company. “This greatly lowered their risk because if we were unsuccessful, they would retain ownership of the equipment, which was resellable,” Bates says.

Cast a wide net.

If you think only your mom and favorite uncle will buy into your idea, think again. Satto, the founder of mySomeday.com, says he was “shocked” at who decided to ultimately invest—so don’t be shy. And if your family and friends are scattered across the country, don’t wait for an in-person meeting to ask the big question.

Casey Burke Bunn, who founded the online RSVP tracking website RSVPhere.com, sent packages through the mail that included a color copy of her business plan, her resume, resumes of board members, and a personalized letter to family and friends. She also laid out specifics—asking for increments of $5,000 to be paid back in five years with 10% interest—and included the loan document in each package. “This was extremely successful for me,” says Bunn. “I was provided the cash I needed to build out my site in 2008.”


Once you succeed in raising funds, keep your family and friends in the loop—whether you’re turning a profit or not. Moody provides a quarterly report for her investors, allowing her to visit with family and friends without discussing the business’ financials, and Bates sends a monthly e-newsletter, which has helped him raise even more capital.

“At one point we hit a pothole and were in danger of running out of cash,” he says. “But because we kept our investors informed, a couple of them increased their investments to get us through the rough period.”