Subscribe to Inc. magazine
VIDEO  •  BALANCING ACTS

Balancing Acts: Brother, Can You Spare a Dime?

Meg Cadoux Hirshberg discusses the challenges of having family and friends be investors in your company.

Meg Cadoux Hirshberg

Advertisement

Video Transcript

00:12 Meg Hirshberg: Most people who have start-ups have to reach for the low-hanging fruit in terms of money and investment and that means friends and family. They're not bankable and VCs aren't interested. We certainly reached for that. My mother was our largest outside investor. My brothers invested also. Many of our friends invested. As Gary said, anyone with a necktie was fair game in those days.

00:36 Hirshberg: And the flipside of that is that that money is really put at risk, and in our case it was put at risk for an extended period of time. We didn't have a profitable year for nine years and the money wasn't made liquid, excuse me, until the company was about 15 years old. So, it's important for everyone to understand when they invest in you that that money may be illiquid. They may lose it, of course, and it also may... They may not get it back for an extended period, if at all.

01:04 Hirshberg: In our case, it worked out in terms of personal relationships. My family didn't put a lot of undue pressure on us, but I've certainly spoken with a lot of people who had fractured relationships with friends and family as a result of misunderstandings around money.

01:23 Hirshberg: Also when the entrepreneur borrows money, they have to understand that that puts stress on their spouse also. So even if it's not the spouse borrowing the money, she... In this one particular case I'm thinking of, she became... The entrepreneur husband borrowed it from his own sister, but the spouse gets put in an awkward position. She sees her sister-in-law and they get together for vacations and she's thinking, "Gee, does she want her money back?" So, I think people really need to be very, very careful and protect themselves emotionally, as well as legally, when they get into these arrangements.

Last updated: May 12, 2011




Register on Inc.com today to get full access to:
All articles  |  Magazine archives | Livestream events | Comments
EMAIL
PASSWORD
EMAIL
FIRST NAME
LAST NAME
EMAIL
PASSWORD

Or sign up using: