The Fallacy of Friends & Family
Okay, now that we are a couple of weeks post-holiday, I want to ask a question. How many of you had an awkward holiday dinner or celebration with a friend or a family member who is also an investor? When the money that is invested in your business comes from the people who are closest to you it can certainly change the relationship dynamic. It may cause anxiety, unease, and discomfort. So, why the hell do we do it?
The apparent reason is that those closest to you are typically the people who believe in you the most. Many times, they really want to be a part of the ride. And, of course, there is the reality that they are biased towards you and are usually not as sophisticated an investor as one of the industry’s angels or venture capitalists.
Here is where things get a bit weird. There is a belief, which I am not sure is actually widely held, but more an industry narrative. It goes like this: professional investors want founders who have significant friends and family money behind them. Because those founders are likely to be far more committed to seeing things through. They will work a lot harder to avoid letting family and friends down, then they would work for their professional investors. In my experience, that is total B.S.
I have yet to meet a founder who doesn’t carry an investment dollar as a burden of responsibility. However, that burden is not what dictates their willingness to work hard or to lean into the headwinds. That has nothing to do with whose money they are using. It doesn’t matter if it is mom and dad’s, an angel’s, or a VC’s. They want to succeed. They want to solve a problem, disrupt a category, heal people, and or the planet. The money is just the fuel. The engine is their passion.
No one should feel compelled to raise money from someone close to them to prove to future investors that they are in it to win it. Most of the professional investors I know and work with would agree wholeheartedly with me. If you are fortunate to have friends and family who want to invest, who are and will continue to be supportive, patient, and helpful, take that money and count yourself lucky. Don’t, however, let folks invest who can’t afford to lose it, who might choose to kick you when you are down or have the ability to turn what were once joyous gatherings into awkward, uncomfortable events. It is not worth it, and it will work against your progress and success.
Very few, if any, brands in the natural products industry can bootstrap to scale. Therefore, investment dollars will be necessary. But money is the fuel that helps propel the passion and not what drives perseverance. That stick-to-itiveness, stubbornness, and commitment are either present or absent. It has nothing to do with the source of funding.
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