Ben & Jerry\u2019s was started by childhood best friends. Four grad school buddies founded Warby Parker. A long friendship-turned-partnership brought Clear to TSA security lines across the U.S. A shopping trip between two pals launched size-inclusive clothing brand Universal Standard.<\/p>\n\n\n\n
Yes, stories of successful business partnerships between friends exist. But for every Ben and Jerry, there are countless Janes and Joes ticked off at their college roommate for stiffing them on a business loan.<\/p>\n\n\n\n
Mixing business and friendship can tank a relationship. So, if a classmate, colleague or childhood friend asks you to invest in their business<\/a>, you need to look at it from all angles.<\/p>\n\n\n\n Think like a professional investor<\/strong><\/p>\n\n\n\n Don\u2019t let your personal relationship cloud your business judgment. Evaluate the request as if it was coming from a stranger.<\/p>\n\n\n\n Does the business offer something unique? Does it fill a need in the market? Does the founder have business acumen? Do they have experience in the industry?<\/p>\n\n\n\n \u201cA professional investor always wants to see where the \u2018Aha\u2019 is,\u201d says Dileep Rao, clinical professor of entrepreneurship at Florida International University. \u201cIs this likely to become a major company? If the potential is huge, it makes sense from a financial perspective.\u201d<\/p>\n\n\n\n You also need to know the terms of your investment and what you\u2019re getting in return. If your friend is asking for a business loan<\/a>, discuss the repayment timeline and interest.<\/p>\n\n\n\n If your investment is in exchange for equity, review the terms. Is it solely a financial transaction, or will you have access to and input on business operations?<\/p>\n\n\n\n A handshake deal doesn\u2019t cut it, even with \u2014 or especially with \u2014 lifelong friends. Make sure everything is in writing if you opt to invest so there\u2019s no confusion down the line.<\/p>\n\n\n\n Always, always study the business plan<\/strong><\/p>\n\n\n\n Examine the business plan to see if your friend has thought through all aspects of the venture.<\/p>\n\n\n\n A thorough business plan<\/a> should include financial projections, current revenue, five-year projections and a detailed market analysis that outlines competitors and potential obstacles.<\/p>\n\n\n\n \u201cYou have to do your due diligence even if you have known the person your whole life,\u201d Dimitrios Mano, an entrepreneur, said through email. Mano co-founded Bloom Express, an online CBD marketplace, in 2019 with a close college friend while the two were still in school.<\/p>\n\n\n\n Outside of his co-founder, Mano did not approach friends or family for a startup business loan<\/a>. The duo relied on personal savings and income from their day jobs.<\/p>\n\n\n\n \u201cI have seen friends ruin 20-plus years of friendships over irrelevant business arguments and family members completely cut ties with one another because of a slight disagreement,\u201d Mano said. For him, the investment wasn\u2019t worth the potential personal cost.<\/p>\n\n\n\n Communicate, but set boundaries<\/strong><\/p>\n\n\n\n The lines between business and personal affairs can quickly blur when you invest in a loved one\u2019s business. While clear, frequent communication is essential, it\u2019s important to draw boundaries.<\/p>\n\n\n\n When Mark Aselstine co-founded Uncorked Ventures, a now-defunct online wine club, with his brother-in-law, the duo set strict rules at the onset.<\/p>\n\n\n\n \u201cWe decided at the beginning that we wouldn\u2019t say anything to each other that we wouldn\u2019t say to our nieces or nephews,\u201d Aselstine said through email. The two relegated business talk to morning meetings, rather than casual outings. \u201c[We] had a rule to not talk about it at family events [and] dinners. Having those dividing lines, but open communication was key.\u201d<\/p>\n\n\n\n Don\u2019t invest money you can\u2019t afford to lose<\/strong><\/p>\n\n\n\n \u201cDon\u2019t think you\u2019re going to make a fortune if you help a friend out,\u201d Rao says. In fact, don\u2019t expect to make any money at all.<\/p>\n\n\n\n Roughly 20% of businesses close within the first year, according to data from the Bureau of Labor Statistics. And most startups never deliver a positive return.<\/p>\n\n\n\n \u201cAsk yourself if you are OK if you lose all the money you invested in your friend\u2019s startup,\u201d Amanda Sanders, founder of Authentic CEO, said through email. Sanders has been on both sides of the equation \u2014 as an entrepreneur and an investor.<\/p>\n\n\n\n \u201cIf the honest answer is yes with no ill will toward your friend, then the relationship is likely to remain solid regardless of the business outcome,\u201d she said. \u201cIf your answer is conditional, then the outcome of the friendship is likely to be conditional on the business investment.\u201d<\/p>\n\n\n\n Offer support, expertise over cash<\/strong><\/p>\n\n\n\n Money isn\u2019t the only way to support a friend\u2019s business. You can offer time, expertise and connections.<\/p>\n\n\n\n Pitch in at pop-ups and events. Manage their social media accounts. Hand out flyers to get the word out. Be a sounding board for ideas and issues.<\/p>\n\n\n\n Or just show up with takeout from time to time, Sanders said.<\/p>\n\n\n\n \u201cHaving a friend interrupt your endless work schedule and bring in the food, the fun and the Fireball (the third part is optional) is very important for maintaining sanity.\u201d<\/p>\n\n\n\n This article was written by NerdWallet and was originally published by The Associated Press.<\/em><\/p>\n\n\n\n More From NerdWallet<\/strong><\/p>\n\n\n\n Kelsey Sheehy writes for NerdWallet. Email: ksheehy@nerdwallet.com. Twitter: @KelseyLSheehy.<\/p>\n\n\n\n The article Should You Invest in a Friend\u2019s Business? originally appeared on NerdWallet.<\/p>\n","protected":false},"excerpt":{"rendered":"Ben & Jerry\u2019s was started by childhood best friends. Four grad school buddies founded Warby Parker. A long friendship-turned-partnership brought Clear to TSA security lines across the U.S. A shopping trip between two pals launched size-inclusive clothing brand Universal Standard. Yes, stories of successful business partnerships between friends exist. But for every Ben and Jerry, […]","protected":false},"author":7,"featured_media":2602,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"no","_lmt_disable":"","attr_excerpt":["Ben & Jerry\u2019s was started by childhood best friends. Four grad school buddies founded Warby Parker. A long friendship-turned-partnership brought Clear to TSA security lines across the U.S. A \r\n shopping trip between two pals launched size-inclusive clothing brand Universal Standard."],"footnotes":""},"categories":[40],"tags":[],"class_list":["post-2594","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business"],"yoast_head":"\n