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Raising Fund from Family and Friends for Start-up Venture

Fund from Family and Friends for Start up

Boom of Start-up Ventures

With many start–ups beginning in the hostel dormitory rooms, or in the garage or even in your own study room, every start–up requires some sort of funding to take shape in reality. Initial funding for any start–up is usually sourced from family and friends. But how good will this go in the near future? What if the company fails to generate profits? And even if the company succeeds, what if it fails to reach expectations? Will you be able to pay back to family and friends? Will the next get together be the same? On the contrary, if one cannot source funds from the near and dear ones, how could an external in the form of Angel Investor trust you?

Fund from Family and Friends for Start-up Venture

So, raising funds from family and friends is both a Yes and No given a neutral circumstance. One has to choose his / her options carefully before raising funds from the dear ones. It’s quite important to analyze the business plan keeping yourself as a neutral, as one of your distant friend and finally an Angel Investor. If you give it a thought about how risky it would be for your business, once it comes into existence, facing all the fierce competition in whatever sector it might be, you might think withdrawing idea of raising funds from your family.

At the same time, having an unique idea, in a sector that has been hardly touched, can also be a Yes and No at the same time. Your idea might be unique and rare, fine! Do you have the potential to build a business around your product, completely from scratch? Are your ready to risk your beloved ones money in it? One fact remains the same, you cannot file a bankruptcy if your raising funds from family and friends, as your can’t cheat on their hard earned money.

Case 1:

Your company is doing great, and business is flowing, which you started by raising funds from near ones. Now, will you be fair in distributing the equity to them? Or will you be able to pay back the debt at the current market interest rates? How much impact does a borrowed sum from your close ones have on your psychologically? Will you be able to make anyone of your round of investors (family and friends) a long term partner in your company? All these questions do arise, assuming that a company is doing well.

Case 2:

Your company had shut down in just 3 months, losing all the money raised from your family and friends. Do you have the potential to return back the debts? Is your family OK with what has happened and how well would it go with them? Are you ready to start a new venture, if so from where would you source the funds this time? Numerous questions are put to an individual if the business fails.

After in depth analysis, it’s quite understandable that, raising funds from a family is both Yes and No. In our view point we  would say No for raising funds from family. It not only challenges you psychologically, but can also hamper your personal relations at family and social level too if things don’t go on the right note.

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  1. I am personally against this idea of raising funds from family. It is one of the most delicate issues. Firstly, the transparency in forming and giving opinions as well as working freely is subdued. You might not be very comfortable to speak your heart out nor go against them in difficult situations. Getting external funding is much more comfortable. Also, its better to get out of the comfort zone of family to do things personally and take your own stand. And as rightly pointed out, bankruptcy is another issue which no one would like to file against family members. So why deal with complexities?

  2. Raising money from family or financial institution is a personal choice. But in most cases people opt for institutions rather than family or friends. This is to avoid any strains on personal level. Banks and such institutions offer such loans with proper documents. The article cleary explains it with examples .

  3. I completely agree with the writer. Everyone doesn’t think the same way as we do. When you shine in the world, everyone wants you around but when it reverses everyone turns around even your kith and kin. So, the best option could be anything except your relatives and close friends.


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