Would you risk your friendship for your business?

[Kevin Lee]

Hi Everyone,

I recently told my best friend about an idea I had for a tennis shop and without being asked, he immediately offered to be angel investor or silent partner. Keep in mind that my friend is also a huge tennis fan... but I'd prefer to only "take the plunge" and potentially lose my own money rather than his as well.

What would you do if you needed a capital investment to start your business/dream, but didn't have the money on your own or from a bank to do so? Would you risk your friendship or relationship with a family member to bring your business to life? How much would you dare to borrow?

[mphcoach]

Surely, you would only seek to risk the freindship if you felt that the risk was well manageable Kevin, wouldn't you?

Otherwise, what kind of friend are you to them?

Regards

Martin
http://www.Best-Student-Loan-Guide.com

[TheAnonymousMan]

Hi Kevin

It depends on the personality of your friend and whether the relationship would remain the same no matter how much money you make or lose.

If you feel the relationship would take a beating if you lost a lot of money or your friend is hoping for a doubling of his investment in 1 year, maybe it isn't realistic to consider the investment for your new business.

Money can always be replaced but a friendship can't always be repaired if a major event comes between 2 people. If the trust or bond between two people cannot be broken on financial matters and the 2 parties can simply "write it off" as a bad experience should the business not work, you could seriously consider the investment offer.

[OmnivoreInk]

Or rather - accept the investment!

but I'd prefer to only "take the plunge" and potentially lose my own money rather than his as well.

Seems to me that this is what angel investors are needed for. If you have a good business plan, and if you think your shop willl work, why not let your friend invest in it?

If there's a chance of it failing...you shouldn't be starting it to begin with.

As I'm sure you know, most businesses fail because of a lack of cash flow in the early years. Explain to your friend about this, show him all the books, and if he still wants to go ahead...let him!

[BizLoanz4u]

I follow the rule that you should never do business with friends or family (aside from business, I never borrow from them on a personal level either).

It's nice that your friend offered without being asked, and i'm sure he thinks your idea is a really good one or he wouldn't have made that type of offer (to risk money) just out of friendship. I'm sure if he didn't think it woould fly, he wouldnt have made the offer.

It's a matter of personal preference whether you want to have a friend (or family memember) be your Angel investor. You both need to understand the risks involved and discuss the "what if's" beforehand....What if it doesn't work out? Does he lose his initial investment? Should you try to pay him back if the business fails, when he offered to take the risk and you didn't ask? These are things that should be discussed and even though you are friends, you should have a lawyer draw up an investment or partnership agreement. Understand it's a business venture and the friendship should have nothing to do with it.

[Kevin Lee]

Surely, you would only seek to risk the freindship if you felt that the risk was well manageable Kevin, wouldn;t you?

Otherwise, what kind of freind are you to them?

Of course Martin, and that's why I immediately turned him down. It's not that I think my idea will fail, but there's just never any guarantees in life and it's too much money to lose (it would be in the 10’s of thousands).

And TheAnonymousMan, my friend and I have been "best friends" for over 13 years, but potentially losing any significant amount of money would surely change the friendship. It wouldn't matter that a person read or willingly signed the legal fine print... when it comes to money, people maybe able to forgive in time, but they'll never forget.

Michele, I think it's ok to do business with family and friends, but there's a huge difference between both parties being 50/50 investors and sharing the workload and failing together vs one party running the company and losing the entire investment of the other person. The fingers of blame would only point to the person who accepted the angel investment.

[Chad McBain]

If you pitched your friend then maybe you need to be wary. But if he made his own decision without prodding or asking from you then so be it. Make sure they are aware of the risks and then proceed.

[ginger21]

i'm rather idealistic so i would choose friendship over business any time.

[Kevin Lee]

If you pitched your friend then maybe you need to be wary. But if he made his own decision without prodding or asking from you then so be it. Make sure they are aware of the risks and then proceed.

Hi Chad,

Even if my friend decided to join me on his own volition (i.e. without me prodding or asking him directly), and was aware of the risks, he would still be upset and put the blame on me if the business failed. Money has been known to destroy all kinds of relationships.

And I would side with your ideals ginger21.

[mphcoach]

...or if the two of you have a synergy and that would work to be benefit og the opportunity, then maybe it's possible.

My take is that if true friends work together on a project and both lose money, and that was clearly understood as possible at the start then no-one has a shock.

If anything is held back, then it's always going to be just a matter of time before someone feels aggrieved - and then friendships really do suffer.

Hope this helps

Martin
Coaching Businesses To Success

[labzak]

Make sure that you have a business plan before you start any king of business.

[David Hurley]

A good test of friendship is what happens when the money goes down the drain.

A friend and I gave a good and trusted friend of ours a wad of cash to invest in property in Croatia and the Balkans back in 2003.

From that time until now I worked on the assumption that the money was lost and that I would have to recoup it by my own efforts! That did not bother me. I have lost no sleepless nights and my friend tells me I have not lost my money, but made a packet.

My fellow investor is a complete pessimist and is certain that all really is lost. Our friend tells me that he will cash me out by the end of the year... What if he doesn't? Since 2003 I have been working on the assumption that I am starting from scratch and as far as I am concerned it makes no difference since while we live we can fight another day and recoup...

My only worry is how our friend would react if he really does lose the money. It would be humiliating for him.

Personally, I am very happy with my investment, which is totally unsecured on paper or anything.

Some years ago I had a pension with a highly reputable company, which at least was highly reputable until everything went pair shaped.

Give your money to institutions you do not know or to friends you do know... which is better?

And if you lose a friend over an investment, you can thank the stars it was not your life you were trusting him with and be glad to be shot of one more fair-weather friend...

[Kevin Lee]

A good test of friendship is what happens when the money goes down the drain.

Give your money to institutions you do not know or to friends you do know... which is better?

And if you lose a friend over an investment, you can thank the stars it was not your life you were trusting him with and be glad to be shot of one more fair-weather friend...

Interesting outlook David! When it comes to friends and money, I'm the type of person who feels the need to return anything I borrowed right away. For instance, last year I asked my friend in NY to help me buy some Nike tennis apparel and the moment after we greeted one another at the airport, I returned the small sum I owed (it was only $20-30 USD). Being a good friend, I think it shows poor class if you need to be reminded to repay a friend.

It's one thing to treat a friend to something out of goodwill and another when you're taken advantage of. For example, if a friend says they'll reimburse you after borrowing money, then they should and can't just pretend they forgot.

But to answer your question, I'd say you're better off giving your money to an institution rather than a friend when it comes to investing. If you lose a friend's money there'll be guilt and the "investor" friend might feel resentment, which could affect the friendship.

[litekepr]

It seems a big part of making it work is when both people enter into it as a BUSINESS situation. Personal guilt etc over a personal loan is one thing, but investing in a business venture is not the same thing.

As I was reading the comments, I thought about 3 men that I worked for some years ago. They bought a few stores in a franchise and each brought their own special expertise to the venture and they all invested a substantial amount of money. One had the experience in the franchise and the industry, one had the bookkeeping and promotional experience and the other had contacts for promotional options and he had plenty of money. Over time, the first two actually worked in the stores, the first more than the second. The third man showed up on day one, but didn't come into the stores again.

These guys were college frat brothers and believed in each other's abilities. They started out with 3 stores and fifteen years later they have 15 or 16 stores and sold a couple of the stores over time. The third party is no longer involved and has been out of the picture for years.

I was there is the very early days and it was a struggle - to say the least I remember vividly how much they struggled to make it work and how much one of the partners worked to learn the business. Their friendship was a real asset to them and to the business.

Shri

[mbrand2222]

I just wanted to say the David's comments made a lot of sense to me. It seems as though he approaches everything with a positive attitude and is very careful not to over-loan money that he would need in the future. Good ideas!