A legitimate way to get your company off the ground is to raise money from people you know – friends and family.
Jeff Bezos did it when he started Amazon back in the 1990s. He pitched his idea for Amazon to his friends and family, and they invested in the business. Now, of course, his parents are billionaires because of it and they are very happy.
Bezos’ concept was simple: sell books over the Internet. His family probably didn’t even quite understand how he was going to do it, which brings up an important point. Family and friends invest in the person (the founder – you) as much or more so than investing in the company concept or product idea.
This is why you need to exhibit passion for your idea. You need to explain why you are so passionate about your idea and why you think it will work. Verbalize the opportunity, so your friends and family can get excited about it, too.
You also need to show that you have done your homework. Your family and friends may love you, but if they think you are just bouncing around ideas for a hobby, they will likely not give you any of their hard-earned money (and tell you to go get a regular job).
You still need to show them that you have done your research. Anticipate their questions and concerns, so you can develop answers ahead of time to address their tough questions and possibly legitimate concerns. You may need to proactively educate them first.
If you can raise $100,000 to get your company off the ground, then you can make progress; you could develop a prototype. Then you can go to angel investors who are likely to invest in a smart, passionate founder or cool idea or something that speaks to their values. You would not be able to show “progress” with a prototype to angel investors during the seed round of fundraising if not for the initial investing by friends and family in your entrepreneurial venture.
Investors like to see smart, confident, committed founders with passion for the business. They like to see an attractive market, and they want to know if you can make money. The bar for raising money from friends and family is lower than with VCs, so you should feel fine about approaching friends and family.
However, be sure to have really thought through your idea, have done your homework and are ready to pitch the idea (even informally) to friends and family with passion and purpose. You could even test out your pitch on one or two trusted friends or family members. Tweak it; refine it; strengthen it.
Not everyone in your family or your friends will invest. You should not take it personally. But if you can get one influential person, such as a rich uncle, to invest in your business, making it known that someone in the family believes in you will make it easier for others to invest. No one wants to be criticized at the Thanksgiving family dinner as the first person to invest in “a crazy idea.”
One wonders what it was like at the Bezos house on Thanksgiving in the early 2000s when the Internet bust happened. Amazon was threatened by the dot com bust. But we know today that the Bezos family can now afford the biggest turkey in the world because family and friends believed in one person (Jeff) to build something great, something that has made a positive difference in the world. Family and friends can make a difference, too.