What Are Some Common Mistakes Entrepreneurs Make When Accepting Seed Capital from Friends and Family?

  1. Not being strategic when asking friends and family for capital/equity. Do you want to ask 200+ people for small sums, or less people for larger amounts?
  2. Not documenting investments from family/friends. It helps to find a middle ground between getting an attorney involved when accepting seed capital from family/friends, and not documenting anything formally at all. A website like Lending Karma can help you document investments.
  3. Not showing the progress you’ve attained, in terms of milestones/prototypes. By showing family and friends that you put your blood, sweat, and tears into a product, with some kind of prototype, and clear goals, you generate trust and the feeling that the potential investor is investing in something other than just an “idea.”
  4. Not speaking to attorneys about drafting proper seed capital financing contracts. 

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