Top Highlights

• For example, any investment, even of friendly money, puts the entrepreneur on a path to sell, sooner or later.
• She advises that if you must take money from relatives, get them in and out quickly, with short-term debt. Whenever possible, structure the transaction as a loan rather than as equity so valuation does not become an issue. If you do give up equity, make sure to press for a shareholder agreement and get a right of first refusal on the stock.
• Friends and family will also likely have opinions about how to run your business. As long as they have cash on the table, you need to listen.
• Get a good lawyer and document everything. Make sure even close family members sign a minority shareholder agreement; explain to them that this protects you both. Provide a mechanism to resolve disagreements. Make sure you have a right of first refusal on the stock so that investors are not able to sell it to whomever offers the most (which could w...
• Identify the amount of money you can take from friends and family and still feel comfortable with the investment. As Gary put it: “You need to avoid being immobilized by fear, but able to look yourself in the mirror and not feel like a schmuck.”