Start-up love money, an alternative to fundraising?

Love money, also known by the acronym 3F (Family, Friends and Fools) is a practice born in the United States to finance the development of a business. Investors are relatives, friends or family members who give money to enable a start-up to start operating.

Finding funding for your start-up can be tricky. Loving money is a very common practice in the entrepreneurial world: great entrepreneurs like Jeff Bezos started there. This type of financing has its advantages, but also its disadvantages, even if they are quite small. to help you in the creation of your company, love money can be an effective solution to raise funds later and increase your capital. Discover the love of money and its characteristics.

Love of money, what is it?

Love money, or literally “love money”, consists of asking loved ones for funding to develop your own business. Contrary to what one might think, it is not a loan from relatives. The latter, by becoming financially involved with capital, become company shareholders. The purpose of this investment is primarily emotional rather than profitable: relatives give money so that the colleague succeeds professionally. It is possible to open a crowdfunding platform and invite relatives of the entrepreneur to invest in it.

The amounts that can be donated range from a few hundred euros to several thousand euros. However, it is necessary to be aware of what these gifts can represent: certainly there can be advantages for both parties, but there can also be some disadvantages that can weaken the relationship between close people (families, friends, etc.).

What are the benefits of the love of money?

There are lots of advantages to loving cash finance. Investors are kin: there is an emotional closeness to them. You don’t need to be as persuasive when presenting your business plan, although it’s best to be confident in your plan. The financing search process is accelerated: it is not necessary to go through investment funds or Business Angels: your funders are close to you.

Entrepreneurs also benefit from better investor engagement. As they are close people on a daily basis, they will remain committed to the project as long as the relationship remains intact. It also allows to have a bigger start with banks as part of a potential fundraising.

What are the disadvantages of the love of money?

There are, however, downsides. We cannot forget that investors are more than that: they are relatives. The relationship between the entrepreneur and the investor must remain intact so as not to harm the company’s activity, especially since the latter becomes a shareholder. There may be conflicts that could jeopardize the good progress of love money financing.

Another disadvantage is that the value is limited: it is not possible to raise millions of euros with love money alone. This is why most entrepreneurs use love money in addition to other financingsuch as an honor loan or financing by a bank.

What are the benefits for investors?

Investors have more advantages than entrepreneurs. Funding the development of a European VSE or SME allows funders to benefit from an 18% reduction for income tax. This benefit has a limit of 50,000 euros per person and 100,000 euros in the case of married couples or PACS. To be eligible, you must have tax residency in France, make the cash investment, or hold the bonds for at least 5 years.

The reduction in wealth tax is 50% with a maximum limit of 45,000 euros, however, this reduction cannot be accumulated with the reduction in income tax. Investors also benefit from the capital gains tax exemption via the PEA.

Now you know a little more about the love of money. It is possible to create a crowdfunding platform in order to bring together the investments of several family members. Financing for the love of money will also facilitate the future fundraising adding a little money to the company’s capital.

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