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Do friends and family investors get equity?
Two of the main kinds of family and friend investments are business loans and equity funding. You promise you will repay the loan with interest or give an equity stake to your friend or family member as a thank you for their support.
Can you invest in a company your family works for?
Sure, your friends and family can invest in your company. People do it all the time. You can give them whatever you want in return: a personal or business loan, a convertible note, stock, or something more creative like a charter membership, some consulting work, mow their lawn, whatever.
Can you invest in a private company if you are not an accredited investor?
While non-accredited investors are allowed to invest, there are certain restrictions. An example would be a company interested in raising private equity to invest in something like a hedge fund or a new business. This means that only the wealthiest individuals have access and can participate in early-stage investment.
How much equity do you give in friends and family round?
Since a typical pre-money valuation for angels would be between $1 and $3 million, in general the maximum pre-money valuation from friends and family should be between $250,000 to $1 million.
Can a family member become an equity investor in a business?
Although many businesses seek out professional equity investors, your friends and family members can also become equity investors in your business. Unlike a lender — who temporarily provides you with money to operate your business — equity investors actually buy a piece of your business.
Is it worth the risk to invest in an equity investment?
To make the risk worthwhile, equity investors stand to win big if your business succeeds. If your business grows fast, investors will earn a lot more than they would have by merely making you a loan and collecting interest. For example: If a friend loans you $10,000 and you repay it at 6\% over 2 years, your friend will make $637 on the loan.
Should I let my friends and family invest in my investments?
Never allow friends or family to invest their life savings or drain their retirement account, even if they are willing. This kind of personal risk puts too much pressure on you to return their investment. Only accept what they can afford to lose no matter your level of confidence.
What are my financing options when raising money from friends and relatives?
There are three main financing options when it comes to raising money from friends and relatives — gifts, loans, and equity investments. Learn about each one so that you can make the best choice for you and your potential lender.