MBA1615 Q&A Wednesday: Should I ask my dad to invest in my business?

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Hey oh welcome to the $100 arm show. Practical business advice every single day with our daily 10 minute business lessons for the real world. I'm your host, your coach, your teacher Omar Zenholm. I'm also the co founder of the Hundred Dollar MBA, a complete business training and community online over at 100mba.net and today is Q and A Wednesday where I answer a question from one of you, one of our listeners. If you have a question you want to ask just go ahead and email me at. Omar Today's question is from Roy and Roy asks should I ask my dad to invest in my business? Hey Omar, love the podcast. I'm looking to start a new technology business. It's a new mobile app. I think it's a great idea and it's really going to be successful but I need some funding. I could try to get a loan from the bank or raise capital from an investor, but I don't need that much money, just $20,000 so I can get started. I know my dad can afford that type of investment. Should I ask him or is it a bad idea to involve family in business? I would love your help in any way. Thanks. Love the podcast. Keep it coming Roy. Great question from Roy. He's looking to start his new app, his new business and he's Looking for some funding needs $20,000. But he's a little apprehensive about asking his father. Maybe his father is not a good investor to have or somebody he wants to work with. Or maybe he doesn't want to mix family and business. Business, like you mentioned. Well, I get into this question and the idea of raising a round of friends and family, which is common in a lot of startups, where they get their first funding from people that they know. Should you do it? What are some things to look out for and what do I advise Roy to do in this situation? That's what we get into in today's episode. So let's get into it. Let's get down to business. So Roy asks, should I get my dad to invest in my business or should I ask him to invest in my business? It's good that you actually say invest an investment means he's going to get a percentage of the company in return for the $20,000 you're looking for. And this is not a loan. This is not like, loan me 20 grand and I'll pay you back. Your father will be a part of the company, meaning he'll own a part of it. It may not be a controlling stake, but he will own a good portion of it. Especially the fact that you haven't started yet. Your company really doesn't have much value because you don't have anything to show yet because you haven't sold the app, you haven't made money from customers, you haven't made any re. So you haven't shown any kind of traction to say, hey, this company is worth X amount of dollars right now. It's just the hopes that just purely on the concept and the idea that you will actually give him a return on his investment. The first thing I want to say is that if you're going to approach your dad for investment, you have to see him as an investor and not your dad, which means you're going to have to present him the business. Just like you see people presenting on Shark Tank. What is the first thing they ask on Shark Tank? All the sharks. They ask the same question every time somebody does. They go through the whole presentation, things like that. The first question they ask is, how many units have you sold? How many sales have you made? How much money did you make in revenue? They want to know, do people actually want what you're selling? Does the market value this product? Because the investor, that's all they really care about. Does this thing have legs? Does it have the potential to grow their opinion really doesn't matter. It's the market's opinion that matters. So you're not in that position right now where you can actually give numbers and prove that people want what you have. And that means you need to give up more equity to get the money. So think about the value of your company right now. It doesn't really have much value because you're not selling anything. You don't have nothing in your hands yet, you don't have anything created. But what will it be in the future if it's somewhat successful? It's really hard for you to tell because you don't have any data. But even if you say in two years the company's going to be worth a hundred thousand dollars, in order for an investor to want to make money, they're going to want to at least double their money. That means they're going to want at least 40% of the company. If you're uncomfortable with all of this, then my advice to you is try to bootstrap your business as much as possible. Use some of your savings, grow as you can. Think of the minimal viable version of your app so you can get idea validation first. Get product market fit, get some customers, make some revenue, see if this thing has legs first before you actually try to raise capital. Because it's a lot easier to raise money when you have a working product, when you have sales, when you have customers where you can say, hey, people like this, and it's making money. And here are my projections. But right now you don't have any of that data. So if you're willing to par with, you know, a big percentage of your company, then go ahead and get an investment from your father. And doesn't matter if you're your father or anybody else, that is an option. If you're willing to part ways with that large chunk of percentage, whatever that is. If you still feel like you don't want to bootstrap, you want to raise some money, try to see if you really need 20 grand. How much is the bare minimum you need to start this thing to have it off the ground? Maybe it's not 20, maybe it's not 10. Maybe it's 5,000. And $5,000 can be earned. You can actually hold off on launching this product and save five grand after a few months of living a little frugally. If you absolutely have to take a loan, $5,000 is a whole lot better than 20 in terms of what you're going to pay in interest. But if you do want to approach your father and you feel like you'd like to have him a part of the business. There's nothing wrong with mixing family with business as long as it's clear what expectations are, what everybody's getting in the deal. You don't want any sour grapes later on you to feel like that they got what they asked for, what they, they knew what they were getting into. And this is why it's important for you to be open and honest with your dad. If you're going to approach him and as well as pitch to him as if he was an investor, you have to convince him that your product, your app, actually has the potential with any data you can gather. Even if it's surveys, even if it's market research, even if it's just simple as, hey, my app is in this market and the potential in this market is X amount of dollars of revenue a year. This is how big the pie is. This is how much money that can be made. Who are the big players in that market? Who are your competitors and how are you going to compete with them? These are some things that you can really explore and display and present to anybody who's interested in investing, including your father. And all this is not time wasted. You're actually investing some really good time and learning a whole lot about the market you're about to enter. You're going to be well prepared and be able to really be able to make your mark and market your product once it's ready. So even if he doesn't invest, the work you did to get the information to pitch properly is really going to help you understand what your business is all about. The business model, how you're going to make money, how you going to expand, competitive analysis, all that kind of stuff. Now understand, if your dad says yes and you guys do work together and you're going to be partners now because he owns a part of the company, right? And he's entitled to know what's going on. So you got to give him regular updates, monthly updates. Hey, this is what is going on around the company. This is our progress. This is how much money we made. This is the hires we made. He needs to know he's getting a return on investment. You got to treat that investor, regardless if it's your father or not, with respect. And this is an ongoing thing. It's not like, let's take my money and I'll talk to you later, you know, when we sell the business. I'll see you then. No, investors need to be updated. They need to know what's going on with the business, the growth, the trajectory you're on, changes, challenges, all that kind of stuff. Because you're not only getting money, but you also can get a perspective. Maybe your father might be able to lend some advice. When it comes to hiring or firing or finding great talent, he's not required. But you need to share the journey and understand that your partner is now and he's entitled to know what's going on, at least from a bigger picture point of view. You don't have to know the daily nitty gritty, but regular monthly updates is really required, is what I say.

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To wrap up today's lesson, asking your father for investment is not a bad idea. But make sure you understand that this is a partnership and you're gonna have to do some work to earn the investment. If you want to avoid this altogether, try to reduce the amount of money you need to get started just to get the ball rolling so you can earn some money so you can sell your product and see how you can raise that money through just earning it or saving it or a low interest personal loan if it's a small amount. But in my opinion, it's always safer to bootstrap. It's always better to work with money you have and not money that you borrow because if things don't work out as planned, which happens in business, that's just the truth. You're not on the hook, you're not in debt and you're not disappointing other people. So it's really important to to know what you're getting into when it comes to startup money. Thank you so much for listening to the 100 MBA show, Roy. I hope that helped. I hope these options kind of clear things up for you to know which path to take. I wish you all the best. Don't forget to email me and let me know how things worked out. I'd love to know. And if you have a question you want to ask, just email me over at Omar100- MBA-NET so I can answer it right here on Q and A Wednesday. And of course, don't forget to hit that subscribe button on whatever you use to listen to podcasts. Whether it's Stitcher Radio or Apple Podcast, Himalaya or Spotify, we're on them all. By hitting subscribe, you get access to over 1600 business lessons in our archives. It's the only way to get access to our archives. It's absolutely free to hit subscribe right now. Before I go, I want to leave you with this. A lot of us feel that there's a lot we can't do until we get funding. There's a lot you can do before funding. You can do a lot of research. You can do development work for your product. You can start to pre launch and market it. There's a lot of things you can do with a small budget or no budget. So at least get going, take some steps forward, make your business real. Start building your website, start building an email list. Create some buzz. Understand the market you're serving. Be part of that audience until you have the money. And you don't need a whole chunk of money right now, right? You can take a little bit and invest it. Build something out until you can launch something minimal viable. Thank you so much for listening to today's episode. I'll see you in tomorrow's. Until then, take care.

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