Financing Your Innovation: Founders, Family & Friends

Sandy Robertson, Georgian Angel Network, Collingwood, ON, CYBF Mentor

Part 1 of 3 – Financing Your Innovation Series

Think of financing for start-ups as a series of concentric circles. In the centre, or the point of origin, are the founders. As a recent post-secondary graduate, your financial resources are likely limited. If you do not have cash available, where possible you should borrow a prudent amount from personal sources (through a line of credit or second mortgage, for example) as your initial investment.

The next circle is that of family and friends, otherwise referred to as ‘friendly money’. These funds can come either in the form of a loan (preferably, with low interest rate and generous repayment terms) or by issuing equity in the company. It is important to keep in mind that early-stage capital is very expensive. With only a concept or idea, the risk to investors is high so they will want a commensurate (potential) return. As the founder, be cautious about trading an equity stake in exchange for capital at this point. Further stakes will need to be given up along the way to continue to finance growth – thereby diluting your ownership level.

See the entire Financing Your Innovation series:

• October 5, 2011: Part 1 – Founders, Family & Friends
• October 12, 2011: Part 2 – Angels & Dragons
• October 19, 2011: Part 3 – (More) Angels & Venture Capitalists