LESSON 23Think Twice Before Investing with Friends and Family

Nothing is more important to an entrepreneur than capital. And nothing can bring as much embarrassment, resentment, and peril to relationships with people you love and respect than losing their money. For your first venture, things might be different because people tend to temper their expectations, but once you are already a successful entrepreneur and people invest with you because they think it’s a sure thing, watch out. The risk to personal relationships is almost certainly not worth the potential pain and anguish.

For too much of my career, I was not disciplined enough to say no to friends and family who wanted to invest in my deals. Often, I felt the urge to do them a favor, but accepting money for an investment that you are responsible for can be a huge burden if it doesn’t turn out well.

Too often, a successful entrepreneur takes the money because he wants to be a hero—not because it spells the difference between making the deal or losing it. This is a sure sign that your excitement has blinded you to the real risks.

It has taken me more than 30 years to learn this lesson. Enlightenment finally arrived in mid-2016 as I was getting ready to buy a portfolio of photographs that could be worth many, many times what I paid for it. It seemed like the kind of asymmetric opportunity that I like—where the upside is many times the downside—and I shared my excitement about the prospects with a very close friend who ...

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