Friends and Family Investors

Even under the best economic circumstances, it is difficult for an entrepreneur to raise capital from angel investors, VCs, banks, and other "disinterested third parties." It's even more challenging if you're a woman or minority. In my case, I reached out to my friends and family at the very beginning. They contributed about half the start-up costs. After that, I had a combination of my own savings/investments, commercial loan, credit cards, and income from my "day job," which I had the "good sense" not to quit.

Here's my advice for current and aspiring entrepreneurs who are looking to tap into their friends and family as potential investors:

1. Friends and Family Are the "True Angels"
Don't sit around waiting for some random "angel investor" who doesn't know you from Adam to fall from the sky and be ready to invest in your idea. When I started my company, only one person who invested did not know me before I pitched him, and I found him through someone with whom I had a personal connection and relationship. The rest were business-minded friends and family who believed in my ability to succeed, understood the long-term return on their investment, and did not lie awake at night worried about their money.

2. Have a Plan
My friends and family were willing to part with their money to support my business because I had a business plan that explained every aspect of the venture in detail. I could clearly articulate the key reasons why my business would be successful. You absolutely must be 100 percent clear about what success looks like and what's the "end game" for your business so your friends and family know you've got your act together.

3. Your Skin in the Game
I know that a key reason that my friends and family got behind my venture was because I put in a significant amount of my own capital and I had a "fall back plan" with a day job in case things went south, as they did with this recession when I was forced to close my restaurant business. You cannot expect other people to invest in your business if you have this "illusion" about using "other people's money" to launch your idea. It doesn't work that way for most of us. Rather, we need to prove that we're "in it to win it" and demonstrate that we are truly committed to that idea and will do what it takes to make it work.

4. Be Clear About the Purpose of the Funds and Write it Down
I have a Sub-Chapter S Corporation, which makes my investors shareholders in my company, and I put together all the proper legal documentation to ensure everyone understood the risks, rewards, and responsibilities of investing in my company. If you're not selling shares and you're borrowing money from friends and family, create a document that outlines the terms and conditions of the loan. If you're not comfortable doing that yourself, get a third party to intervene or look into online communities that act as the "middle man" for people-to-people lending agreements.

5. Be Prepared to "Chase and Wait"
When I was going through this process, I joked that I felt like public broadcasting during pledge season: "Can you give $5,000? Oh, that's too much. What about $2,000 or $2,500? Will that work?" And that's what it took: I raised the money I needed over the course of several months, and it took months after that to actually get my investors to write the checks. I have investors in my business who initially contributed as little as $2,500, with most folks coming in somewhere around $5,000 to $10,000. For most people, this is "real money" and you have to be patient and "gently push" them to meet your deadlines once they've committed their support.

When it comes to friends and family investors in your business, you have to plan ahead to achieve your results. Considering they are the ones who are most likely to support your business idea and want to see you succeed, it's worth it to invest the time and resources to bring them into the fold.