How to Find Investment Capital – The Family Connection
There is one responsibility of all business entrepreneurs that is loathed more than any other. It’s asking for money. First off, you have to find financial resources and then you have to ask for money. This article is dedicated to finding money and how to ‘ask’ for the money from a family member. It is easier than you think.
There are generally five levels of investors. Each has positive attributes, but more importantly, each has a way to be approached for the ‘ask’. What are the five levels of investors?
2. Business colleagues or competitors, vendors, suppliers, & other associates
3. Angel investors
4. Capital Investors
5. Public Investors
I’m going to focus on the family level first. Levels two through five will be discussed in other articles.
Getting money from family is probably the hardest to do. You have to go to someone with financial resources and ask them to risk this money on you. It is not easy to do. Worse yet, you place that family member in an awkward position. They don’t want to say no, but sometimes that have to say no because of some circumstances they can’t fully control. Furthermore, this is sensitive stuff and so there is a way to make the ‘ask’.
First off break the ice a few weeks beforehand. Let them know that you are researching or considering purchasing a business. Get their input on your concept. Let them guide you. If they are negative, then odds are they will say no at the end of the day. If they are indeed interested in your situation, let them give guidance, let them ask questions, ask if you can get back to them with answers. Provide them with the details, do your research: see Business Principles – Start-up Issues and read Research Your Plan- Part I and Part II. The key is to get them involved in the business situation and provide guidance to you. They will become invested in the business potential and will be more open to the ‘ask’.
Once you have satisfied them with information, it is time to set up the meeting. Ask if you can meet one on one with them to discuss it further. Of course they will want to help you, but if they prod for more of what the meeting is about, tell them that you are interested in seeking out money to make this work. The key here is that you are giving them many opportunities over time to push you away without having to make the direct ‘ask’. Once the day comes, be point blank with them at the meeting. Tell them you are here to ask for capital to make this work. Let them know that you realize that this is not only a business affair but it’s a family affair. Tell them you know it is not completely fair to them but if they say ‘no’ you are not going to bring it up to them or to other family members in the future. This will give them comfort in making their decision; you are making sure they are comfortable with saying ‘no’.
If they are willing to lend money, then they will be interested in the terms. Tell them that you would gladly allow their accountant to set the terms so as to be appropriate. Accountants are OK with helping in situations like this, we want folks to succeed. Don’t offer terms, let the family member offer terms through their accountant and or lawyer. This gives them more confidence in their decision that you are allowing an outside authoritative figure to provide the guidance and conditions to make this happen.
Remember, when dealing with family, communicate with them first without making the ‘ask’. Get answers to their questions, squelch their concerns with information via research and then once they are comfortable, make the ‘ask’. This whole process will take two to six weeks to complete. If you are in a rush, it will be obvious and you will make it more difficult on yourself. During this whole process, LISTEN for clues that they are not interested in this venture. I CAN’T EMPHASIZE THIS ENOUGH, LISTEN FOR CLUES! If you didn’t catch on to my thought here, I capitalized each letter and bolded the entire sentence, so take this seriously. LISTEN FOR CLUES! The family member may indicate pending financial difficulties from medical care to selling an investment such as real estate etc. This takes money to get through these expensive issues. You don’t want to put them in a difficult situation of choosing between themselves and you. Listen for other types of clues, such as selling investments for a loss to generate cash, having to make some form of a large installment (life insurance, disability insurance, or long term care items), listen to clues that business isn’t going well or that they may want to retire early. All of these are hints to you to not ‘ask’ the question. Pay attention to these details. It is their polite way of telling you not to ‘ask’ for money.
By communicating and listening, you can win the confidence of a family member to make the investment into you. If you listen as I illustrated above and can see that the family isn’t going to invest in you, you will have to move onto step two which is your business colleagues. When you read the next article on this subject, you will have already been working on this group for investment even before asking family for money. Act on Knowledge.
© 2012 – 2022, David J Hoare MSA. All rights reserved.