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business Wednesday 23 March 2022
Millennial Money: Should you invest in a friend’s business?

In this June 15, 2018, file photo, twenty dollar bills are counted in North Andover, Mass. Associated Press
By KELSEY SHEEHY business acumen? Do they A thorough plan should in- vest in a loved one’s busi- invested in your friend’s
of NerdWallet have experience in the in- clude financial projections, ness. While clear, frequent startup,” Amanda Sanders,
Ben & Jerry’s was started dustry? current revenue, five-year communication is essen- founder of Authentic CEO,
by childhood best friends. “A professional investor al- projections and a detailed tial, it’s important to draw said through email. Sanders
Four grad school buddies ways wants to see where market analysis that out- boundaries. has been on both sides of
founded Warby Parker. the ‘Aha’ is,” says Dileep lines competitors and po- When Mark Aselstine co- the equation — as an en-
A long friendship-turned- Rao, clinical professor of tential obstacles. founded Uncorked Ven- trepreneur and an investor.
partnership brought Clear entrepreneurship at Florida “You have to do your due tures, a now-defunct online “If the honest answer is yes
to TSA security lines across International University. “Is diligence even if you have wine club , with his brother- with no ill will toward your
the U.S. this likely to become a ma- known the person your in-law, the duo set strict friend, then the relation-
A shopping trip between jor company? If the poten- whole life,” Dimitrios Mano, rules at the onset. ship is likely to remain solid
two pals launched size-in- tial is huge, it makes sense an entrepreneur, said “We decided at the be- regardless of the business
clusive clothing brand Uni- from a financial perspec- through email. Mano co- ginning that we wouldn’t outcome,” she said. “If your
versal Standard. tive.” founded Bloom Express, an say anything to each other answer is conditional, then
Yes, stories of successful You also need to know the online CBD marketplace, in that we wouldn’t say to our the outcome of the friend-
business partnerships be- terms of your investment 2019 with a close college nieces or nephews,” Asel- ship is likely to be condition-
tween friends exist. But for and what you’re getting in friend while the two were stine said through email. al on the business invest-
every Ben and Jerry, there return. If your friend is ask- still in school. The two relegated business ment.”
are countless Janes and ing for a business loan, dis- Outside of his co-founder, talk to morning meetings, OFFER SUPPORT, EXPERTISE
Joes ticked off at their col- cuss the repayment time- Mano did not approach rather than casual outings. OVER CASH
lege roommate for stiffing line and interest. friends or family for a start- “(We) had a rule to not talk Money isn’t the only way to
them on a business loan. If your investment is in ex- up business loan. The duo about it at family events support a friend’s business.
Mixing business and friend- change for equity, review relied on personal savings (and) dinners. Having those You can offer time, exper-
ship can tank a relation- the terms. Is it solely a finan- and income from their day dividing lines, but open tise and connections.
ship. So, if a classmate, col- cial transaction, or will you jobs. communication was key.” Pitch in at pop-ups and
league or childhood friend have access to and input “I have seen friends ruin DON’T INVEST MONEY YOU events. Manage their so-
asks you to invest in their on business operations? 20-plus years of friendships CAN’T AFFORD TO LOSE cial media accounts. Hand
business, you need to look A handshake deal doesn’t over irrelevant business ar- “Don’t think you’re going to out flyers to get the word
at it from all angles. cut it, even with — or es- guments and family mem- make a fortune if you help out. Be a sounding board
THINK LIKE A PROFESSIONAL pecially with — lifelong bers completely cut ties a friend out,” Rao says. In for ideas and issues.
INVESTOR friends. Make sure every- with one another because fact, don’t expect to make Or just show up with take-
Don’t let your personal rela- thing is in writing if you opt of a slight disagreement,” any money at all. out from time to time, Sand-
tionship cloud your business to invest so there’s no con- Mano said. For him, the in- Roughly 20% of businesses ers said.
judgment. Evaluate the fusion down the line. vestment wasn’t worth the close within the first year, “Having a friend interrupt
request as if it was coming ALWAYS, ALWAYS STUDY potential personal cost. according to data from the your endless work schedule
from a stranger. THE BUSINESS PLAN COMMUNICATE, BUT SET Bureau of Labor Statistics. and bring in the food, the
Does the business offer Examine the business plan BOUNDARIES And most startups never fun and the Fireball (the
something unique? Does it to see if your friend has The lines between business deliver a positive return. third part is optional) is very
fill a need in the market? thought through all aspects and personal affairs can “Ask yourself if you are OK if important for maintaining
Does the founder have of the business. quickly blur when you in- you lose all the money you sanity.”q