This will be the very first kind of money that we getting from investors besides what the founders put in. What are the legal rules as far as accredited and unaccredited investors, minimum and maximum investment? Any advice about pitfalls and steps to take so that if everything goes wrong, the relationships will survive?

As a UK entrepreneur where this stuff has totally different (i.e. relaxed) rules, I can't comment on the specifics there.

However, as someone who has taken early 'angel' money from friends I can give this advice:

1) Keep it as separated from your personal relationship as possible. This means making repayments on time (if it's a loan) and doing realistic and fair equity deals.

2) Create a basic written agreement - you probably don't need to use professionals yet. Stick to the important details and keep a copy each. Any good lawyer can turn something written on the back of a napkin into a legally binding contract, so don't worry about that for now. Make an agreement and if the company becomes worth anything, you can spend some money to redraft that agreement if needed.

3) Make sure everyone is totally clear that as soon as the money is handed over, there's a 90% chance it's gone already. Don't make any promises to "personally repay every penny if it doesn't work out" because thats not how business works. Treat your friends/family with professional respect and trust that they fully understand the risks of investing or borrowing to startups.

4) Be transparant with them on progress, so any bad news doesn't arrive suddenly. In the 90% chance that it burns and you lose all of their money, you need to be able to repair your relationship afterwards and that will be a lot easier if they've been with you on the journey

I borrowed money from friends as loan capital on 2 occasions, and on both occasions was fortunate enough to have everything work out great and I repaid the money with a great return.

Happy to talk further over a call on handling this as an entrepreneur.

Answered 7 years ago

Unlock Startups Unlimited

Access 20,000+ Startup Experts, 650+ masterclass videos, 1,000+ in-depth guides, and all the software tools you need to launch and grow quickly.

Already a member? Sign in

Copyright © 2021 LLC. All rights reserved.