
Friends, Family and Fools: the worst investors - DanielRibeiro
http://swombat.com/2013/7/22/friends-family-fools
======
kephra
I guess I qualify as a 'fool investor'.

I have more (semi)passive income then I need for living, and still work (30
hours in average per month, 2012) on projects that I consider fun, earning
even more. I've been self employed most of my lifetime, while most of my
friends are long term unemployed, or try to make a living with short
precarious works. I agree to them that most jobs are shit, and encourage them
to step out of the treadmill, helping them with their problems with
unemployment office and the like.

Every few years, one of my friends has a business idea to become self
employed, and if I think that the idea has value, I invest in them. e.g. I
helped a friend to buy tools and machinery to become a self employed ship
builder, and bought washing machines, desks, computers for an other friend to
launch an self service laundry + internet coffee shop. I also help them in
keeping the books, and filing taxes. I wrote my first accounting system at age
of 13, so I know what I'm doing.

My investment terms are likely the most unusual you ever encountered: I take
no interest, and they are free to pay back any amount any time they want. But
if they do not manage to pay back at the time my birthday is dividable by 7,
then I fold all debts. The same terms applies, if I help a friend with money
for bail, or tenancy deposit, and the like.

I really enjoy my frugal lifestyle. I have no use for more money, besides
gifting/investing it in real life friends that no bank or normal investor
would even touch.

~~~
swombat
I'd say you qualify as an extremely eccentric investor. Most "fool" investors
would never say "I have no use for more money", or be willing to write off
their investment based on arbitrary criteria like their birthday being
divisible by 7! :-)

~~~
kephra
That criteria is not arbitrary, but can be found in tora part of Shmita
jubelee year.

~~~
derefr
Just because someone else wrote it down at some point in the past, doesn't
mean it wasn't an arbitrary decision on _their_ part. Arbitrary doesn't mean
"senseless", though. There are good economic justifications for the concept of
a Jubilee; just no precise reason to have one over any given period or
another.

------
noonespecial
_Friends and Family investments are like the reverse of a convertible note. If
everything goes well, they remain an expensive, low-valuation share
investment. If things go badly, they turn into a loan securitised by that most
valuable of assets: your personal relationships._

That's all there is to it really. Hang it on your wall. Tape it to your
monitor. I'm here to tell you. Don't. Do. It.

------
nknighthb
I'd have no trouble taking money from friends who have been around the startup
block a couple times. These people don't need me to protect them from
themselves. Asking directly seems tacky, but they'd know I was looking (some
I'd be going to for help finding investors!), and if they expressed interest,
that'd be fine.

Family I'm more iffy on, but that may only be because I don't really have a
bunch of relatives who are both financially secure enough and sophisticated
enough to understand what they're doing. In fact, I can only think of an aunt
and uncle who I might consider taking money from, but even that I'm not so
sure about.

It's really about whether they fundamentally grasp business, investment, and
risk. And if they can't distinguish business and personal relationships, I
don't think they're sophisticated enough to be investing in a startup to begin
with.

~~~
swombat
_I 'd have no trouble taking money from friends who have been around the
startup block a couple times. These people don't need me to protect them from
themselves. Asking directly seems tacky, but they'd know I was looking (some
I'd be going to for help finding investors!), and if they expressed interest,
that'd be fine._

Those definitely fall into my latter category of "successful entrepreneurs". I
agree that you can take investment from them - because they know what it's
like to run a business!

------
derefr
> If you can't raise the investment you need from proper investors, and you
> find yourself thinking of resorting to FFFs, I suggest you instead consider
> the idea to be out of your reach. It's better to work on another idea than
> to end up with the sort of nightmarish scenario that is all too common near
> the end of an FFF-funded startup.

This implies that there is a startup idea the person could be working on
instead which _would_ be within their reach.

For most startups--or at least YC's pure-software "we did it for $10 on AWS"
startups--the "getting off the ground" money from the FFF round is pretty much
to cover your cost of living during the time you're building and launching and
gaining traction. So, I don't see how picking a different idea _decreases_
your cost of living...?

~~~
swombat
_This implies that there is a startup idea the person could be working on
instead which would be within their reach._

There always is. If you think there isn't, you need to learn to hustle. Not
every business idea has to involve 18 months of dev time before you see any
revenues. I'd argue that if you can't cover your cost of living yourself, then
you definitely shouldn't be doing the kind of startup that doesn't generate
revenues from day one.

------
Choronzon
Im willing to bet that if you are going to do a statistical breakdown on most
successful companies investment money has has directly or indirectly (ie
through connections) family money,with friends or personal connections a close
second. While would largely agree with Daniel on the downside of the three Fs
there are upsides too. You dont waste 6 months pitching at the most critical
time of your business startup,you dont get screwed by information asymmetry
dealing with experienced investors and most importantly you actually get the
money rather than "we will call you back".

------
nakedrobot2
Because all of us starting a company have the ear of Ron Conway, Dave McClure,
Marc Andreesen, and the other triple-A-list superstars. </sarcasm>

I'll take money where I can get it, to realize my dream, thanks anyway for the
snobbery.

