we did actually ask to meet and present it with him. We are interested in the funding and will need it shortly or we will become under capitalized in the next few months.

We have been doing consulting work primarily to stay in business at this point, but we need to cut it off or else we can't dedicated enough time to our project.

in regard to #3, this relative is an investor by trade. He has invested 150K this year in oil and natural gas, he is completely aware of the risk and is embracing it.

I definitely understand the strain that could still put, but I am not his first family investment, either.

If he knows what he's doing and could help in more ways than just money, go for it. Else, pass on. Though, you should know that run4yourlives is right on this one. I've done it and couldn't regret more.

Just because you did it and it didn't work out doesn't mean it's a bad idea. Your sample size is small.

Also, it's fine to take "just money" rather than money with value add. As long as it's not dumb money.

There are probably millions of companies since the dawn of enterprise that took small amounts of money from friends and went on to be successful, often because of it.

Rubbish. The statistics on successful businesses show that he is more than likely going to fail. If you take the money, in all likelihood the investor will never see a dime.

Now, I don't know how much experience you have, but taking money from family is stupid. A) they are biased. B) the familiy member will always be there, for the rest of your/their lives. C) the debt, therefore, will always be in your/their minds, especially if the "investor" lucks out of other investments. D) 25K is easily gotten from other sources.

When people say "don't use your own money" I think this includes family too. I'd much rather use mine than families.

So my advice: keep consulting, take his advice and leave his money. If it's a good idea, there'll be no shortage of money from outside sources.

That doesn't mean anything. The statistics on successful businesses might easily show that businesses that took money succeeded far more often than ones that didn't. And the overall statistics clearly show them to be +EV.

Just because there is a high failure rate doesn't mean the funding is not worth it for both parties.

A high failure rate means the poster should take much more care taking money from someone he will see for the rest of his life.

If the plan to make money is good, it's easy to get money, so why risk it? It's already a huge risk without involving your family.

I believe (big stress on believe) that there are big risks involved on mixing money and family, but as you said, it's just my experience, and what didn't work for me may work for someone else.

Okay, that clarifies things a little.

I'm a big believer that if you need someone else's money just to get something off the ground, it doesn't mean enough to you. I think people are too quick to give away all their work.

You've got a consulting income, which you admit you could increase if you take focus off your project. Is it a bad thing to do this if it means you remain self funded?

How long does $25K buy you? 3-4 months? What could you do in 1 month? Could you release? Why/Why not?

The lack a money is a wonderfully powerful constraint in proving your idea. It's better to force you product to confront the realties of the market it is in (i.e., is it going to float or will it sink) as fast as possible. Taking capital can sometimes delude you into believing answers to this question that aren't necessarily the correct ones. It gives you an inflated sense of positivity.

Good luck to you, either way!

we didn't start this business to be consultants, I hate consulting...I did it for 6 years before we started our company, we want to build our product first and foremost. we've spent the last year writing software for other people (again), and I am tired of it.

Okay, so after a year of development, my first question to you would be: where is your product?

I've looked through your comments, and I suppose you will take this investment. That's certainly your prerogative. I would say though that you should put all that money into releasing whatever you have now in some way or another. Kill whatever feature isn't done. Try to find an audience of potential customers that will be willing to help develop your software to finish. Some may even be willing to pay - you'd be surprised.

Actually, we've spent the last year as _consultants_, we haven't been able to develop the product yet. We are starting that this month. Also, we are approaching potential schools to sign up for the project up front as well, giving them a deadline release date.

Good luck to you. I hope things go well for you. If you didn't like consulting though, just wait until you have to deal with school administration!

run4yourlives raises some good points. But if you're sure you want to do the deal, the main thing you have to figure out is how much of the company your new investor will own, and how much of it will be owned by you and your partners. If you're not already incorporated you'll need to do that, and you can probably just include your investor as one of the founding shareholders (perhaps the only one who doesn't need stock vesting). If you are already incorporated, you can start with an angel financing doc from YC, and run it by a lawyer to make sure your case isn't special for some reason. If you're not sure where to find a lawyer, you should ask some startup founders you know personally -- this probably isn't a complicated scenario, but there's nothing like incompetent legal help to make a simple scenario into a gridlock.