Should I Take My Friends' Money?
emadibrahim.com
emadibrahim.com
They'll start watching every purchase you make and wonder "is that my money he's spending?" I can't talk about buying a new phone, a new laptop, or anything else. My own mother heckles me about "paying my employees too much". Every time they see a photo of you on facebook at a music festival they're going to think, "so thats what he's doing with my money." They'll want status updates every time you see them when what you need is a few hours away from work.
If you can bootstrap--do that. Only raise money to expand when you're already doing well but could be doing better.
You really need to evaluate who you're receiving money from. Are they the right person to invest in your company? Will they support you in the low times and not try to screw you in the high times? If you think this will happen if you take money from your particular friends and family, then inuhj's advice is solid.
But it sounds more like expectations weren't managed. If you haven't told your investors how you're going to spend their money that is your fault for not telling them and treating your investors how they should be treated. Every investment dollar should have a purpose. (Yes, treat your friends and family like investors. Not like family. If you treat them like family who gave you money, they'll treat you like family who took their money, as in inuhj's example.)
The golden rule of raising from friends and family: If you're trading on relationship, then you put the relationship at risk. If you're trading on merit of the investment, then the relationship is separate.
This then allows you to at least somewhat evaluate whether the investor will freak out if you lose their money. As with an angel investor, they need to be willing and ABLE to lose every penny they put in. TELL THEM THAT. If they have a problem, or you sense a problem, don't take their money.
This then blur's the line between "friends & family" and "angels." VC's or VCs-in-angels-clothing are a separate category. This is not a firm that "does angel investing" this is an individual high-net-worth individual. Could be friend, family, or other.
And this is coming form a guy who will never have a relationship with his Godparents because a business deal between my parents and my Godparents went south when I was a baby.