I caught a blog post last week recommending friends and family financing for a startup. It’s dangerous when a good blog posts bad advice. So I’m not going to link to that post here.
Years ago I met a man who’d spent 15 years struggling to make a sailboat manufacturing business work. He’d started the business because he loved sailing. He regretted it. He’d managed to keep it alive but not make it strong enough to live without constant worry and overwork. It seemed like he hated his own business. 
“So why do you keep going?” I asked.
“Because I don’t want to tell my parents, two brothers, and three cousins I’ve lost their money,” he answered.
There’s a special irony in the sailboat element of that true story. Does the phrase albatross around the neck mean anything to you? Do you see how it applies? The illustration here is a statue of the Ancient Mariner with a dead albatross.
Years later I invited two brothers, struggling with a healthy fast foods business, to speak to my entrepreneurship class. They told my class about the struggle, the debt, and the disappointments.
“So why do you keep going?” one of my students asked.
“Because we took a lot of money from our own family,” one of them answered.
Do you see the pattern here?
You can find success stories of companies that grew up on friends and family financing. It happens. But if you even consider turning to friends and family to help you start a business, at least be aware of the dangers. Don’t let them not understand the risks. Have good documentation, both the drawn out legal papers and a one-page restatement that nobody can misunderstand, that you can refer back to. Don’t take their money if they aren’t prepared to lose it.
That’s my opinion.
(Image credit: user Aripinstone on Wikipedia)
Tim Berry is the founder and chairman of Palo Alto Software and Bplans.com. Follow him on Twitter @Timberry.
