Terms to Offer??

[Liz Rogers]

Hey guys! My husband and I need to raise some capital for a deal we are working on. We are going to approach some family members with the deal, but I'm not sure what a good return to offer is?? When you ask friends or family for capital what are your terms?? Thank you!

[Stuart Birdsong]

Liz,

    Two recommendations I have would be to offer them the most realistic return you can provide and in the most realistic time frame you can return their money. Be conservative on both. As I have been taught, under promise and over deliver. Don't offer them a 15% return on their money and then pay them 5%, and don't tell them the project will be completed in 3 months, and then finish it 6 months later due to unforeseen challenges. They will never invest with you again. Your better off explaining to them that conservatively you see being able to provide an 8% return on their money and have them paid back in no more than 8 months and then upon successful completion and a higher net, pay them 15% and pay it back in 3 months. You might ask yourself if they are okay investing with me at 8 % why would I pay them more? The answer is the next project(s) they will tell their friends and other family members how awesome a job you did and they will invest with you every time.

In some larger deals that are syndicated, % of equity usually refers to the % of the net that the investor is entitled to, at least until all of their equity is out. This is just another way to look at a deal. Let me know if I can help. Cheers!

Stuart