Are personal investors too emotionally attached to make a business impact?

Michael Hammond discusses the difference he experienced between raising money from family and friends and raising funds through private equity.

Family and friends are the best when it comes to giving support and encouragement when you have a business vision. They’re the ones that heap praise and who are there to lean on when things get challenging. But when money is thrown in the mix, it can be a different story.

Like most entrepreneurs, I began my first ‘business’ while at school. Luckily, my playground trading enterprise didn’t require angel investment or numerous pitches to VCs, but my more recent businesses have, and it has been an eye-opener.

That first venture back in school was over a decade ago, but now as a 23 year old I have had to turn to equity raises in order to realise the ambition I had for PropertyTV, raising hundreds of thousands of pounds in 2015, with more to come in 2016.

Finding the right funding

Most entrepreneurs are just relieved to gain the financial backing they need to propel their business to the next level, but money can come with caveats. Think about Dragons’ Den for a moment. Yes, it can be cheesy but it’s very interesting once it gets to the negotiations. How often do people choose the Dragon with the most relevant experience and business links? It’s actually quite high, although far too many still misunderstand the benefits such contacts will lead to for an extra 5 per cent of their business.

The old saying ‘I’d rather have a small piece of a big pie than a large piece of nothing’ applies here. A cliché, yes, but so true.

So where does that leave funding from a family member or friend? Does that mean it shouldn’t be considered because they don’t have an open door to the CEO of Argos, Halfords or a big influencer in your sector? Not necessarily. You must spend a significant amount of time thinking about what your business needs before determining the best financial route required.

Do you need guidance, help and money, or does it simply need funds to buy or develop what it’s already doing? If it’s the latter, does it really matter if your funders are Dragons or family members?

Family and friend funding feuds

Having worked in the property sector for a couple of years while I was at university, it became abundantly clear that there just wasn’t enough guidance and advice about property for the mass market; television needed to do more. Yes, Sarah Beeny and Kirstie Allsopp have done wonders for the property market and homeowners but I wanted something different, something that could make a real difference to those interested in property, which turns out to be most of the country.

Three years ago, I set about launching PropertyTV which would be the only TV channel dedicated to property. Its primary long-term goal is to inform, educate and advise, where possible, on all things property related. Being a full-scale channel, it will cater for first time buyers, homeowners looking for new ideas, property investors and even developers whether aspiring or existing.

Raising money to make it happen is an ongoing process with various rounds already in discussion. But 12 months ago, when the possibility of getting on to Sky TV became apparent, it was clear that an initial phase of funding was required.

There were numerous offers on the table but each of them had strings attached. Some were simply overcomplicated agreements, while others required various triggers and dilution mechanisms.

The money was very real but their motives and legals just didn’t add up for a start-up that simply wanted to raise enough money to get going. I explored numerous routes. And for me at the time, family and friends were a vital catalyst for PropertyTV both financially, and mentally.

But it wouldn’t have been enough without other contacts I’d made through family members and friends. Having met in a café, one of our bigger investors has a different role. His stake and terms are somewhat different, because he offers something extra outside of the investment money. His background is in finance, and he has also helped to build numerous successful businesses from scratch. He now works very closely with me in running the business, while offering thought on my vision and ambition for the business.

So what really is the difference? For the family and friend funders of PropertyTV, it was important for me to be able to accept their money and do what I needed, without having a plethora of new ideas that could have detracted from the core offering of PropertyTV and the opportunity that Sky TV had presented.

Although that sounds terribly harsh of me, it was to protect the relationships I have with them too, and not let any business disagreements harm that. I call it ‘emotion management’. Having mutually put this firmly in place from the beginning, everyone knows and accepts their role, which actually makes it easier to share the odd idea or two.

In fact, this year’s Christmas dinner resulted in a cracking idea which has been added to the plan, although there was a turkey or two in there as well.

Michael Hammond is the founder of PropertyTV.

Further reading on raising money

Related Topics

Small Business Funding

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