For a start-up, the first round of investment can be the hardest. Without enough proof of concept to go to a venture capitalist, many entrepreneurs turn to their family as investors. Depending on the structure of these investments however, you could be setting yourself up for a more difficult pitch when the second round comes. Inc. gives advice on structuring family investment to maximize the possibilities of future capital requests.
So when Aunt Gladys starts fumbling in her carpetbag for a checkbook, talk her gently out of an equity stake. Instead, structure the investment as convertible debt: a loan that gets swapped for equity in the next big round of financing, says David Cohen, a venture capital investor and CEO of TechStars, a Boulder, Colorado-based angel fund.
