Investing with Friends and Family

Eyes Wide Shut

Curtis Potyondi

You have a new project which needs additional capital, and you ask your advisors for help on how to source the funds. Invariably their response begins with “look to your friends and family first.” Why… because this is the quickest, easiest, and likely the least expensive route to take. Sounds great at first because Grandpa has always believed in you. Further, you will not have to produce a detailed business plan and marketing materials. Easy. Done.

But is it?


Investing with friends and family requires a two-sided lens; one for the business aspect and one for the emotional one.  

Why would you not afford Grandpa the same business information that you would produce for an outside investor? His money is likely as important to him as it is for outsiders. Do it right, create the deck, the marketing material, the detailed financials and the risk disclosures as they will provide the critical information that any investor will need for the decision, and if Grandpa doesn’t come up with enough funds, then the information is ready for others. Go through the information with him in a thorough manner as its important for the two of you to be on the same page in regards to matters such as overall vision, benchmarks and expectations on returns. This exercise will produce the basis of all future discussions, which will come up when things go well; or when they do not. Finally, make sure you have signed agreements outlining all of these points because what you intended to say and what he took away from the conversation are likely to be different.

Now you know that you have the capital, you are ready to move forward. But should you?

The emotional side of this discussion is much more perilous, as you will need to envelop a decision that considers both of your needs.

To avoid these awkward family occasions, treat this decision as an independent due diligence team would… remove your emotions and look at the facts, as you are now making the compliance decision. Can Grandpa endure a complete loss of these funds and maintain his standard of living? Can he go on as he is without the cash flow that he is currently receiving from these funds? Protect the decision process, and as a result, you will protect your relationship.

The relationship, now there’s the bottom line in this transaction.

Let’s assume that Grandpa has fully grasped the business elements and is pleased with the potential of your project. That’s step one. Further, assume that he is financially capable of enduring the potential downside. Step two… check. Step three… sign the documents. This is the point of no return, and you have now realized there is more riding on this investment than you first realized. Take your time at this inflection point because it’s now your own emotions on the line.  

So how do you account for the unaccountable? Charge on and handle acrimony if and when it appears? At this point, the mirror is usually the best judge because you need to be able to sleep at night. But not this time! Go back to the facts and the beginning, my friend.

Your business discussion needs to be humble and completely transparent because this is the recipe for a good night’s sleep. Ensure your discussion is not emboldened by your wish to impress and receive affirmation. These are perilous traits in this discussion as they typically lead to overstatements. Be careful with your tone; your eagerness will also be a factor in Grandpa’s decision. Remember that he wants to see you happy and successful as much as you do.

As for the facts… be brutally transparent about the downside. In fact, overstate what the hurdles may be. I can’t overstate this enough... Don’t sell yourself or the project. Now that you have set yourself up to be as emotionally detached as possible, take the time to evaluate his emotional and financial endurance (again) for your project. This non-biased information now enables you to make the final decision on moving forward. If he seems confident with the business’s ebbs and flows, you now have a common understanding for discussions on the company’s future performance. If he doesn’t, you now have the opportune moment to inform him that the potential hurdles of the project may not be the best for him personally to be involved with. But don’t leave it there; close the discussion with an upbeat topic. Ask for his advice on the business itself and how you should handle it as you need to move forward with the same relationship you enjoyed before.  

In conclusion, are friends and family a good place to look for investment capital?  

It is as long as you both have your eyes wide shut.


The views and opinions expressed in this article are those of the author and do not necessarily reflect the views or opinions of Olympia Trust Company, Olympia Financial Group Inc., or any of its affiliates. The author’s views and opinions are based upon information they consider reliable, but neither Olympia Trust Company, Olympia Financial Group Inc. nor any of its affiliates, warrant its completeness or accuracy, and it should not be relied upon as such.

Curtis Potyondi
Senior Business Advisor, Inno-centre

Curtis Potyondi has 15 years of experience in Canada’s capital markets, is a Director of Trinity Hotels, and is a business consultant.