Need Startup Funding? How to Get Friends and Family to Invest

Last Updated Dec 2, 2010 3:43 PM EST

When I was talking to a room of aspiring startup founders the other day, I asked how many of them are looking for funding for their company. Ninety-nine percent raised their hands high in the air with pride. They probably thought I was offering money. "How many of you have a great idea?" I asked. I know, this was kind of a softball, but they ate it up. Most hands stayed high in the air. Then I asked, " How many of you asked your parents for money?" About 80 percent of the hands dropped. So I said, "Well, if your parents won't invest in you then why the hell should anybody else?"

After a few round table chats, I learned that many of the entrepreneurs in the room just did not know how to approach their friends and family. It felt weird or uncomfortable. That is when I told them about my recent social-giving experiment a la Facebook and how I raised about $3,000 in two weeks.

The Hypothesis:
In every experiment, one needs a hypothesis to prove or disprove -- at least that is what my science teachers drilled in my head. So, for this experiment I tried to prove that, "If you just ask your friends and family to believe in you, they will."

The Experiment:
I to wanted to see if the traditional friends and family route would really work but I thought I'd try a nontraditional way of asking them. I set up an "event" on Facebook and linked it to EventBrite and PayPal. I called the event, "Help an Entrepreneur Out" and set three levels of payment options ranging from, "Yeah, I am living the dream" ($500 donation) down to "I feel ya, here's dinner on me" ($50 donation). Then I went crazy and left an open amount option as well. I then posted the event link to my Facebook page for all of my connections to see.

The Results:
Shortly thereafter, I received a few calls from loved ones and I quickly explained that no, I was not on the verge of homelessness, but rather was hoping that they, too, believed in my company and had a few dollars to spare. In about two weeks I raised $1,000 and by the third week nearly $3,000. Then I turned off the event and quickly refunded folks who were so kind to donate to my cause. A few donors who really believed in what I was doing and wanted to support my entrepreneurial dream insisted that I keep their money.

Hypothesis proved.

I am sure there are easier ways to do this in your own life. Perhaps just call up Mom or Dad, the in-laws or even a cousin. If your own family won't invest in you, then maybe you need to take a hard look at your concept to make sure that your good, sound idea really is just that. Let them be your sounding board --besides it is good practice for future investor meetings. If you are going to fall flat then better to do it with family by your side.

Tina Cannon is the CEO and co-founder of PetsMD, a pet health website and veterinary software company dedicated to improving pet health. She has been a financial auditor, business consultant, a featured speaker and member of several boards.
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  • Tina Cannon

    Tina Cannon is the CEO and co-founder of PetsMD, a pet health website and veterinary software company dedicated to improving pet health. Cannon has been a financial auditor, business consultant, a featured speaker and member of several boards. She has a passion for entrepreneurship and serves as a mentor to many young companies in Austin, Texas.