The Capital Well – 3 Fs

The second layer in the well is the three Fs, friends, family and fools.  Many business owners sell themselves to these three groups in telling them how they are going to be the next big business (the next Google or Starbucks).  The three Fs in many cases will give the business owner money to say, “I’m in”, not truly knowing what they are investing in. 

The business owner is using leverage in this scenario because of the use of “OPM”, other people’s money.

One problem with this type of financing is impact of the business on the relationship between the two parties.  If something goes wrong in the business and it fails, the relationship suffers.  In many cases the friend, family member or fool is consistently poking their nose in the affairs of the business and trying to have an impact on how the company is run. Most small business owners don’t’ want that kind of intrusion.

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