Video: Investment from Friends and Family
Start Transcript: Investment from Friends and Family
If you are talking about friends and family type of capital investment, there are some considerations that you want to give to this transaction that go beyond just business considerations. Usually there’s a personal relationship that is very important to all of the parties to preserve, and it’s important when you are creating those kinds of relationships, that you have very full and frank discussion of what the possibilities are, what the expectations are, so that everybody comes into the deal with their eyes wide open. Makes everything so much easier if all of those possibilities are discussed in a full and frank manner at the outset.
Usually it does a lot of good to get some consultation on those kinds of arrangements with a professional, trusted advisor, like a lawyer. Other people can probably give you valuable input on that as well, other business people. CPA’s have valuable insight on those sorts of issues. What you need is to get a sense of what’s reasonable, what’s realistic, what’s common in this sort of arrangement in terms of what’s a fair agreement as to compensation, return on investment, control of the company by the investor, control of the company by the person that’s going to be running the business.
All of those issues can get pretty sophisticated. They need to be considered at the outset, and it’s a lot easier if you consider those issues at the outset rather than once a problem arrives.