The strategy of finding a business partner to attract start-up capital is beneficial in many ways.
Advantages of the strategy of attracting start-up capital through a partner
Firstly, you get the partner’s money, which in itself is already nice.
Of course you have a great business idea. And once there is an idea, then there will be people who want to make money on the implementation of this idea. You will work and implement the idea, and people who have money, let them invest in start-up capital.
Secondly, you get an ally with whom you will build a business together. One head is good, but two is always smarter!
Maybe they can help with something else: connections, experience, equipment? You can even look for such people among friends. Perhaps even you know them.
For example, brother. Well, if his wife is against giving money just like that, then as a contribution for a share in the business, she will not refuse. In addition, there is also my father’s good friend — Uncle Vanya. He definitely has more than enough money, and he has connections.
Thirdly, you avoid the disadvantages that you may encounter:
— attracting money from relatives (see the article to take money from relatives);
— attracting money from the bank (see the article take money from the bank).
In general, you can even attract several business partners!
However, this method of attracting start-up capital to a business has a number of pitfalls:
1) The first pitfall in the strategy of attracting start-up capital through business partners
It appears when the first problems arise in business.
Investors, i.e. Your brother and uncle Vanya want a return on business in the form of dividends. In this case, the conversation is built in approximately the following way.
Brother: “We have been holding money in this project for six months now. What results have we achieved?
You: “I do my best. The furniture has been purchased, the premises have been rented and renovated. Last week there were 5 clients, this week there are already 10. We are constantly growing!”
Uncle: “But in order to make money, you need to serve at least 100 clients a month, and not 30-40, as it was in the past two months. If I had invested money in a bank, I would have already had 5-6% over the past six months, and this project is only a loss!
2) The second pitfall in the strategy of attracting start-up capital through business partners
This «stone» is much worse. It appears when the business has the first profit.
Nothing else can quarrel partners as quickly and completely as sharing profits.
On the one hand, you worked and earned money from this business. This is your money earned by labor, brains and health! But you would never have earned them if not for your brother and uncle. After all, it was they who provided the start-up capital!
There are many questions in case of attracting a business partner:
- In which case would a partner be useful?
- What if the business requires additional investments?
- What to do if the business is experiencing difficulties, and the partner demands the money back? How to share the profit?
- How not to quarrel with your partner because of suspicions of cheating?
- When should you leave your partner?
- What is the best way to break up with a partner?
Don’t discount another question:
— if money is invested in a business only by other people and they are investors, not creditors, whose business is it: yours or theirs?
Legally, the business belongs to the one who invested money in proportion to the contribution to the authorized capital.
Think about it!
Further we read — «seed capital: microfinance organizations».
