In contradiction to Nike, just don’t do it. While exciting at first, it’s not likely to end well. We’ve all heard directly or know someone in our 6 degrees of separation that put some initial seed funding towards someone in their network, and then ended up hitting a small fortune, with the founder hitting it really rich. And then, we assume by cloning the same actions that this will happen to us too. The statistics however, do not back that up.

Even in aggregate, 90% of all startups fail. That’s right, 9/10. Then you have 75% of even venture backed startups failing. So even the world’s best, who are putting large amounts of smart money in, are not able to be a coin flip. It might be more noteworthy that they are looking at the world’s best founders and armed with experts in advisors, connections, and access to capital and other resources. Billy that you grew up with playing pond hockey may not have the same expertise, skills, network, etc. That’s not to say they cannot succeed, but often times, our decision with those we know, friends or otherwise, is based more on the relationship itself rather than the actual competency of the person. We mistake the quality of the relationship for the actual merits of the person/would be company. In that sense loyalty to a fault seems to apply.

I can speak to several first-hand experiences of close calls of those that I had known at the time. One, who ended up being scammed repeatedly in the real estate fix and flip business, out of a lack of discernment in judging character, perhaps out of a lack of character himself or just pure greed. Or another, who also ended up being scammed in an IT business by his own business partner, despite knowing him for a long time. Or yet another, who ended up being duped into leveraging into trades he could not afford, and the aftermath subsequent bankruptcy. To make matters worse, for various reasons, I am no longer even in contact with any of them. Imagine giving your money to a “Friend” and then you lose the money and the friendship, or the friendship first, and the money. I guess the saying of friends and money don’t mix is true then.

Instead of looking at just the people around you, why not expand your horizons? Our brains haven’t much evolved from our ancestors. We still think in that tribal, limited options, scarcity mindset. We just think with our lizard brain and see what is in front of us, thinking those are our only choices and that we have to get in now. Our brains don’t recognize how modern society presents us so many options (perhaps too many), that we actually have too many options to deal with, and scour to find the best one. It’s said that just 1% of startups will reach unicorn status, or 1 billion market cap or greater. Despite that low odd, it’s not bad, as it means 1 in 100 chance you could get a huge home run. There are various angel syndicates available, but those might have restrictions on who can enter. So, why not give it a shot and do some analysis on any number of the growing number of equity crowdfunding sites available?

Disclaimer

This is not Financial Advice. This article is meant only for educational and perhaps entertainment purposes.