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Investments from Friends and Family

Exploring the fine line between friendship and investment through a conversation with my first investor.

8 min read
Investments from Friends and Family
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Before Growth is a weekly newsletter about startups and their builders before product–market fit, by 3x founder and programmer Kamil Nicieja.

Raising early–stage investment from friends and family is a common practice, accounting for around 40% of initial funding for startups. These individual backers often have little to no experience in venture capital, lured by the promise of high returns. Yet, they may be unaware of the significant risks involved. Therefore, balancing their expectations and understanding is a nuanced task for any entrepreneur. What happens if the startup fails? Can relationships withstand the financial loss?

To explore the dynamics of such relationships, I spoke with Bartek Jarmołkiewicz, a close friend who was also the first investor in my prior venture. Bartek hails from Wroclaw, Poland, and has a legal background. Seeking an alternative to a conventional legal career, he worked in Luxembourg focusing on legal multilingualism for a European institution. Currently, he advises on the new global minimum corporate tax rules. His investment was pivotal for my startup during its struggling phase and we wouldn’t have made it far without his help.

Our conversation mainly revolved around the evolution of our relationship as we transitioned from friends to business associates. We discussed keeping early investors informed and helping them grasp the rollercoaster that is the startup journey. However, due to Bartek’s expertise in law, we didn’t delve deeply into the legal aspects of early–stage investment. Additional insights will accompany the transcript of our talk.


Kamil: What initially sparked your interest in investing in our startup?

Bartek: I would say that my primary interest was not business–driven, but community–driven. I knew the founders of the startup for several years at the moment of my investment, as we were high school friends, with Kamil being at the time among the people with whom I spent a fair amount of my free time.

As such, I was often exposed to developments and reflections the founders made with respect to their idea and had some insight into their way of thinking.

I definitely did not have a sound understanding of economy nor venture capital back then, with the situation being maybe only slightly better now. I would certainly say that at the time my conviction was—I am not really investing in a business, I’m investing in people. What else could I have thought anyway? I did not know much about this business or any other, but I knew the people behind it.

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When seeking investment from friends and family, it may be more effective to shift the conversation away from hyperbolic statements like, “This is a surefire, can’t–miss opportunity.” Instead, focus on a more personal appeal: “I’m someone you know and trust, and I’m committing my time and reputation to this venture. I’m asking for your support.” By doing this, you align both incentives and expectations. Rather than promising outcomes that are beyond your control, you emphasize your commitment and effort, which you can ensure will be wholehearted.

How did you feel about the risk associated with investing in a startup?

I did not worry about the risk much. The money that I invested would have brought me a negligible amount of gain in any other safe and low–return placement.

This definitely felt like an opportunity not too many people have access to. I could even inverse the question. The risk I feared was actually not investing. A certain fear of missing out, if you will. A sensation that if I don’t try now I might never get a chance at such a venture again.

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You must ensure that the funds you’re taking don’t constitute a large portion of the investor’s overall net worth. Amateur investors, particularly those emotionally invested in you, might overlook this aspect. A safer approach is to collect smaller sums from a broader group of people to distribute the financial risk. Also, consider raising only the bare minimum at this stage; larger fundraising rounds can come later. In my own startup experience, we took this cautious approach by raising only a five–figure amount from our close network.

What were your short-term and long-term expectations for this investment? How long did you think it would take to see a return?

My short–term expectation was certainly to formalize my participation in the venture and my right to proceeds from the undertaking. As such, my immediate personal interest, which I don’t think always aligned with that of the founders, was to incorporate the enterprise so that I might have my shares inscribed in an official register or a legal document. The long–term expectation was, of course, selling the shares with a capital gain. I never really thought of keeping the shares indefinitely in hope of dividend payments.

I oscillated around the idea of cashing out between 7–15 years after the investment. Sure enough, if an opportunity of a smaller but sure gain would have appeared before that time, this was never excluded per se.


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