Many young entrepreneurs’ initial rounds of funding come from their closest circles – friends, family or relatives. It is difficult to say if this is a good practice or not, but here are a few things that make both sides of this case strong.
Why are parents amazing angel investors?
- Pocket money extension
“Parents are a great source of first time, small capital for youngsters wanting to try out something. It should be seen like pocket money, not debt,” says Sarang Lakare, Founder, IntouchApp.
- Real investors can be brutal
“See, when people have a start up early, it is impossible without money from home. Market investors take a huge piece of your equity if you haven't put much in the business. Parents’ money helps because startup investors are frankly quite brutal in India,” says Abhimanyu Bhosle, Founder, LiveHealth.
- In-depth knowledge of founders
“Angels bet on teams in addition to the idea. Parents know one of the co-founders well and this gives them privileged knowledge on whether to invest or not. Both Bill Gates and Jeff Bezos had angel investment from their parents,” says Sharad Sharma, iSpirt.
“Parent-angel investors give unconditional support. Also, they know the strengths and weaknesses and inside story of the founders, so there is no making up numbers and stories,” adds Lakshna Jha, Founder, sRide.
- Open mind to experiment
“Entrepreneurs will not feel risk averse to a much greater extent since they don’t have the constant pressure of paying back his investor. This helps in more experiment without fear of losing cash,” says Anuj Kulkarni, Prajwal Bharat.
Why are parents sucky angel investors?
- Family ties get complicated
Taking money from them puts a lot more pressure on you, as it puts your personal life and relationships at stake. Also, startups that are funded by friends and family rounds don’t get the kind of respect that the media and investors give guys who raise money from professional angel investors,” says Akash Srivatsava, Founder, EveningFlavors.
- Emotions and business don’t go together
“They make you sloppy and lazy. Parents are usually over emotional, and businesses don't work well with emotions. For example, my parents would care more about my sleepless nights spent doing a certain job, than the progress I am making by doing it,” says Mukund Malani of LiveHealth.
- Investment for the wrong reasons
“I don't think parents are good angel investors! They mostly invest for emotional reasons rather than for the merit of the idea,” says Shivku, Founder of Exotel.
- No financial accountability
Parents don’t help in finance planning. If you know you have a backup, you don't prepare well for it. Building business without accountability to investors rarely creates value,” says Abhimanyu Bhosle of LiveHealth.
All said, it is necessary for parents to support and encourage budding entrepreneurs – but not by selling family wealth and inheritance— to build a healthy startup ecosystem for the future.
Have some more points to add to this ongoing debate? Drop a comment below.
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- Sharad Sharma
- Jeff Bezos
- Angel investor
- Venture capital
- Private equity
- Sarang Lakare
- Anuj Kulkarni
- Akash Srivatsava
- Mukund Malani