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A family member wants to invest $25k into our startup, what do we do now?

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Re: A family member wants to invest $25k into our startup, what do we do now?

#11

Post by imasr »

perezd wrote: post #8
run4yourlives wrote: post #6

Consider this: Say thanks, but no thanks. 1. You didn't ask for the money, it is falling into your lap. Therefore you don't need this money. Why not wait until you need it? 2. If what you build is great and is a success, that $25K will still be there, and you'll have a better idea of what to use it for. 3. If you fail miserably (You don't even have a product to sell yet), the loss of $25K will strain the family. With…

we did actually ask to meet and present it with him. We are interested in the funding and will need it shortly or we will become under capitalized in the next few months. We have been doing consulting work primarily to stay in business at this point, but we need to cut it off or else we can't dedicated enough time to our project. in regard to #3, this relative is an investor by trade. He has invested 150K this year i…

If he knows what he's doing and could help in more ways than just money, go for it. Else, pass on. Though, you should know that run4yourlives is right on this one. I've done it and couldn't regret more.

Re: A family member wants to invest $25k into our startup, what do we do now?

#12

Post by perezd »

run4yourlives wrote: post #10
perezd wrote: post #8

Earlier quoted context omitted.

we did actually ask to meet and present it with him. We are interested in the funding and will need it shortly or we will become under capitalized in the next few months. We have been doing consulting work primarily to stay in business at this point, but we need to cut it off or else we can't dedicated enough time to our project. in regard to #3, this relative is an investor by trade. He has invested 150K this year i…

Okay, that clarifies things a little. I'm a big believer that if you need someone else's money just to get something off the ground, it doesn't mean enough to you. I think people are too quick to give away all their work. You've got a consulting income, which you admit you could increase if you take focus off your project. Is it a bad thing to do this if it means you remain self funded? How long does $25K buy you? 3-…

we didn't start this business to be consultants, I hate consulting...I did it for 6 years before we started our company, we want to build our product first and foremost. we've spent the last year writing software for other people (again), and I am tired of it.

Re: A family member wants to invest $25k into our startup, what do we do now?

#13

Post by shimon »

perezd wrote: post #8
run4yourlives wrote: post #6

Consider this: Say thanks, but no thanks. 1. You didn't ask for the money, it is falling into your lap. Therefore you don't need this money. Why not wait until you need it? 2. If what you build is great and is a success, that $25K will still be there, and you'll have a better idea of what to use it for. 3. If you fail miserably (You don't even have a product to sell yet), the loss of $25K will strain the family. With…

we did actually ask to meet and present it with him. We are interested in the funding and will need it shortly or we will become under capitalized in the next few months. We have been doing consulting work primarily to stay in business at this point, but we need to cut it off or else we can't dedicated enough time to our project. in regard to #3, this relative is an investor by trade. He has invested 150K this year i…

run4yourlives raises some good points. But if you're sure you want to do the deal, the main thing you have to figure out is how much of the company your new investor will own, and how much of it will be owned by you and your partners. If you're not already incorporated you'll need to do that, and you can probably just include your investor as one of the founding shareholders (perhaps the only one who doesn't need stock vesting). If you are already incorporated, you can start with an angel financing doc from YC, and run it by a lawyer to make sure your case isn't special for some reason. If you're not sure where to find a lawyer, you should ask some startup founders you know personally -- this probably isn't a complicated scenario, but there's nothing like incompetent legal help to make a simple scenario into a gridlock.

Re: A family member wants to invest $25k into our startup, what do we do now?

#14

Post by electromagnetic »

run4yourlives wrote: post #7
perezd wrote: post #5

Earlier quoted context omitted.

Understandable, this is not a direct blood family transaction. They are actually a close friend of the family, and honestly the same fear should apply, of course. They are in a position to provide us with a decent sum of angel funding, and they also are fully aware of the risk involved. Actually, they are quite excited about the risk.

Actually, they are quite excited about the risk. Everyone always is, because they're only focusing on the upside and not on the fact that once they give you $25K, it's already lost.

It's a simple fact that most companies fail. Tell them to go to a roulette table and bet on black if they want better odds.

Re: A family member wants to invest $25k into our startup, what do we do now?

#15

Post by perezd »

electromagnetic wrote: post #14
run4yourlives wrote: post #7

Earlier quoted context omitted.

Actually, they are quite excited about the risk. Everyone always is, because they're only focusing on the upside and not on the fact that once they give you $25K, it's already lost.

It's a simple fact that most companies fail. Tell them to go to a roulette table and bet on black if they want better odds.

Again, they are aware of the fact this is a high risk investment and are prepared to call it a wash. They believe in what we are doing and that its going to be a good product for education. Isn't that what investment is all about?

Re: A family member wants to invest $25k into our startup, what do we do now?

#16

Post by run4yourlives »

perezd wrote: post #12
run4yourlives wrote: post #10

Earlier quoted context omitted.

Okay, that clarifies things a little. I'm a big believer that if you need someone else's money just to get something off the ground, it doesn't mean enough to you. I think people are too quick to give away all their work. You've got a consulting income, which you admit you could increase if you take focus off your project. Is it a bad thing to do this if it means you remain self funded? How long does $25K buy you? 3-…

we didn't start this business to be consultants, I hate consulting...I did it for 6 years before we started our company, we want to build our product first and foremost. we've spent the last year writing software for other people (again), and I am tired of it.

Okay, so after a year of development, my first question to you would be: where is your product?

I've looked through your comments, and I suppose you will take this investment. That's certainly your prerogative. I would say though that you should put all that money into releasing whatever you have now in some way or another. Kill whatever feature isn't done. Try to find an audience of potential customers that will be willing to help develop your software to finish. Some may even be willing to pay - you'd be surprised.

Re: A family member wants to invest $25k into our startup, what do we do now?

#17

Post by DabAsteroid »

perezd wrote: post #15
electromagnetic wrote: post #14

Earlier quoted context omitted.

It's a simple fact that most companies fail. Tell them to go to a roulette table and bet on black if they want better odds.

Again, they are aware of the fact this is a high risk investment and are prepared to call it a wash. They believe in what we are doing and that its going to be a good product for education. Isn't that what investment is all about?

they are aware of the fact this is a high risk investment and are prepared to call it a wash.

A wash is merely a break-even situation. Maybe you meant a total loss.

Re: A family member wants to invest $25k into our startup, what do we do now?

#18

Post by trickjarrett »

I can't offer any professional input, but I think you need a very strong warning about working with family. Make sure you lay out the expectations, their responsibility and power, etc. Having an investor adds many layers of trouble by itself, if that investor is family then deeper ties make it hard to interact professionally at times, etc.

Treat this 100% professionally from the start. Draw up contracts, stock reports, everything, anything you can.

Re: A family member wants to invest $25k into our startup, what do we do now?

#19

Post by prashantdesale »

I think you can take money by giving investor a convertible note.

Here is what I found on web regarding Convertible Notes.

------------------------------------- Convertible note is a debt instrument that can be converted into stock at the option of the holder or the issuer. More specifically, the investor can choose to convert the total amount of the note into equity when an institutional investor (such as a Venture Capitalist) makes an investment. ---------------------------------------

but off course you should talk to Lawyer before making decision.

Re: A family member wants to invest $25k into our startup, what do we do now?

#20

Post by electromagnetic »

perezd wrote: post #15
electromagnetic wrote: post #14

Earlier quoted context omitted.

It's a simple fact that most companies fail. Tell them to go to a roulette table and bet on black if they want better odds.

Again, they are aware of the fact this is a high risk investment and are prepared to call it a wash. They believe in what we are doing and that its going to be a good product for education. Isn't that what investment is all about?

You seem more interested in convincing people that accepting the money is a good idea. I'd say you're trying to do this because you know it's inherently a bad idea.

I didn't spend three years studying psychology to learn nothing. You're blatantly conflicted, if you thought it was a good idea you'd have taken the money anyway. There's no reason you're on an anonymous news site asking advice and when people make comments you're trying to back it up.

It's obvious they're aware it's a high-risk investment, I'm saying statistically you've already failed. If you can't say without a doubt that you're going to succeed then don't take their money because when you fail, you'll need the friends.

I honestly hope you succeed, but my advice will be the same. Friends are worth more than success or failure and money is too big an issue to have it in a friendship.

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