© 2015 Vinny Ribas
Many independent, entrepreneurial musicians, artists and music professionals need to raise some form of capital to launch and grow their careers, start a record label, open their own studio, start a publishing company, launch a product invention etc… Some use fan-funding to acquire the funding they need. But many who do not have a large enough fan base for fan-funding begin with a small initial round of investment capital, also known as seed capital.
For most artists, the funds may be just enough to cover the cost of a recording, some marketing, some wages etc. For bigger ventures, or for a major recording and tour, this initial round of funding would be used to set up a corporation and prepare it for raising larger sums of capital. This preparation would include the development of a business plan and financial projections, the protection of intellectual property (copyrights, trademarks, patents etc.), obtaining the legal documentation to become capital compliant (being legally allowed to raise capital), possibly developing some kind of prototype (if it is a product) and other things that make the company attractive to investors. This is often called the “seed capital” round. It is also called your “friends and family” round because the funding at this stage of the game most often comes from the founder’s friends and family.
Regardless of the size of the project, one of the biggest challenges many people have is that they don’t feel comfortable asking their friends and family for money. They are often afraid that it will jeopardize their relationships if the business isn’t successful. For some people it is a pride issue, perhaps feeling that it will make them look needy. Others know that the people who are close to them know them well and have seen the mistakes they’ve made in the past, and so they are afraid that they will just laugh at them. Of course, some people are just afraid of asking anyone for money at all.
Unfortunately, this fear or reluctance to approach friends and family doesn’t only rear its ugly head in the seed capital round. It usually carries through to the full capital rounds that follow. This often results in both parties losing!
I believe the problem arises from viewing this task from an entirely wrong perspective. Instead of taking the approach that you are asking someone to part with their hard-earned cash, take the stand that you are offering your friends (and all potential investors) the opportunity to make a very serious return on their money. Make it all about business. Give them the rare opportunity to get in on the launch of a multi-million dollar venture. After all, if everything goes as planned, they could become wealthy right along side you because of their investment! This is an exciting opportunity that you are offering, and they should feel honored that you selected them to be one of your earliest financial partners!
Put yourself in your family or friends’ shoes. First, how would you feel if you had the willingness as well as the means to help a good friend or family member attain a life-long dream, but they never asked you for help? Would you be disappointed?
Now take it one step further. How would you feel if someone you were close to was launching what promises to be a very lucrative venture, and they didn’t offer you the chance to be a part of it? What would you think if they declined to give you the chance to invest, but instead made total strangers wealthy? How would you feel if they went on to become very successful, and you weren’t ever given the option to invest even a small amount?
Look at your capital raising as the opportunity to reward your friends and family for their friendship and loyalty! You may not think they have expendable income, but you never know what kind of resources they might have to get their hands on some capital to invest. They might also be able to introduce you to some other potential investors. Make them feel like they are the chosen few. At least give them the chance to say “no” on their own instead of making that decision for them. Of course, you want to preserve the relationship, so don’t make them feel guilty or get upset at them if they do say ‘no’. Just accept it, and let them kick themselves down the road for not taking advantage of the opportunity when it was presented to them. Just remember that by including everyone from the start, no one will ever be able to be upset with you for overlooking them or presuming that they wouldn’t be interested.