When Sarthak Doshi’s needed £15,000 to grow his fledgling remittances business, Remigos, he turned to his father and uncle for help.
But tied up in that request was a complex web of family dynamics.
“The worst part was that my father never believed in me, but he gave me the money anyway,” recalls Doshi.
The business had grown quickly in the early days, winning coveted start-up awards and gaining traction with users. Within three months, it was handling £100,000 worth of monthly remittances.
“I had invested £15,000 of my own money but burnt through it after a few poor decisions,” Doshi explains. “I needed another £15,000 to focus on the right things. I really felt the project had legs.”
Doshi prepared a pitch deck and presented it via Zoom, but his father and uncle struggled to understand Remigos’ business model.
“They didn’t know anything about the tech start-up world,” Doshi says. “The numbers I was forecasting were ridiculously high, in retrospect. They told me that it looked unrealistic.”
Despite their reservations, they agreed to invest in the business: “My dad doesn’t value money, he values experience. He invested so that I could learn.”
There was no formal agreement, just a mutual understanding that this money was being exchanged for “a big chunk of equity”, Doshi explains.
Doshi’s story is a familiar one. More and more would-be entrepreneurs and start-up founders are tapping into the Bank of Mum and Dad – or Bomad – to fund their enterprises.
Recent research by wealth manager Charles Stanley shows that 19pc of UK start-ups are now funded by cash from parents. According to the small business bank Zemplar, today’s entrepreneurs are seeking gifts or loans of £6,400, on average, from Bomad.
‘I was dreading telling my father I had failed’
Luckily, Doshi won a coveted place on the London Business School Incubator programme.
“They gave me lots of free resources, which meant I lost less money – and didn’t have to borrow more from my family,” he says.
Nevertheless, a year after the investment, the number of users plateaued and Remigos floundered.
“My dad was worried,” Doshi says. “He wanted to know what I was doing with my life.”
Doshi’s father, an entrepreneur who had built his own business over 40 decades, tried to advise him.
“But it was hard for me to listen at that time.”
Last year, the Bank of India cracked down on digital remittances, which meant that Remigos lost 90pc of its turnover overnight.
“That was a really tough time,” admits Doshi. “I was forced to make the difficult decision to shut it down. I was dreading telling my father that I had failed.”
Borrowing start-up capital from parents can carry an emotional cost, as well as a financial one. Three founders whom I approached to tell their stories said that they couldn’t talk because the experience of losing their parents’ money was still affecting their relationships years on.
Anecdotal evidence shows that very few Bomad arrangements are formalised with contracts and repayment schemes. There are rarely contingency plans in place in case the business fails.
“In principle, borrowing from parents is the same as borrowing from anyone else – you must get it documented,” says Alan Soady, of the Federation of Small Businesses.
“As with any relationship, there can be disagreements and people can fall out. The main mistake people make when lending to friends and family is being too trusting, not getting it documented, and not assessing the other party’s ability to pay it back.”
‘If it had gone wrong, the family would have lost everything’
“I would have died if they’d lost their home,” says Debbie Keeble, co-founder of Heck.
She and her husband, Andrew, launched their sausage brand in 2013 and, later that year, her father agreed to use the family farm as collateral so that the pair could build a new £3.5m factory.
“The bank had offered us an extortionately high interest rate on a loan,” she recalls. “We were a growing business and couldn’t afford those repayments so my father offered to stand guarantee.”
With the agricultural land as collateral, the Keebles were able to build their factory, and now their business supplies all the major supermarkets, turning over £24m last year.
“If it had all gone wrong, the family would have lost everything,” Andrew says of the deal on the land, which has been in his wife’s family for three generations. “There are always tough times in business but we knew we couldn’t fail – there was too much on the line.”
The arrangement was properly documented, both because the bank needed everything in writing, and also because the couple wanted to make a financial contribution in recognition of the risk.
“We paid my father £50,000 a year,” says Debbie. “We worked out how much interest we would have paid, and split the difference with my father, giving him half of that amount – so we both won.
“I never would have let my father bet the farm, literally, if I hadn’t been certain we would be successful,” she continues. “We had orders from supermarkets and we had built a similar business previously, so we knew we could do it.”
Two years ago, Heck switched to a different bank, which no longer required the farm as collateral.
“We proved to be a safe bet,” says Andrew.
‘I feel like I can’t let mum down’
“My mum would have laughed if I’d tried to give her any paperwork,” says Shelly Nuruzzaman, who borrowed £10,000 from her mum to grow her spice kit brand Bang! Curry.
Nuruzzaman, who was in her 40s when she started the business, was unable to access any start-up grants, which were all aimed at young people.
“I started this business with zero investment, stretching my food shopping budget to buy ingredients. But in 2015, we won a contract to supply Hello Fresh. That was when I knew we needed a small cash injection to grow the business.”
Nuruzzaman’s mother offered to lend her the money because of the high cost of bank finance.
“Traditional business finance is just too expensive,” she says. “I was confident that we would succeed, or else I would never have accepted her hard-earned money. When we did a crowdfunding round later, we allocated shares in her name, which allowed us to pay her back in equity.”
Access to affordable finance is becoming harder, says the FSB’s Soady, as many major lenders will require you to give a personal guarantee regardless of the amount your business is borrowing. And of those who applied for funding, just 47pc were successful in their application.
It means that Bomad has become an unofficial lifeline for UK businesses
“My mum lent me £19,000 and I couldn’t have done it without her,” says Jennifer Bailey, founder of Calla Shoes, which makes stylish shoes for people with foot problems.
“I was 36 and had just found out I was pregnant with my second child when I was made redundant from my job at a university. I had bunions and struggled to find shoes so I decided to start a business to help people like me.”
Bailey was granted a £15,000 start-up loan but found building a product business more expensive than she anticipated.
“I needed £35,000 to buy the shoes up front,” she says. “My mum worked as a nurse so didn’t have a lot of money but she offered to give me her savings, the insurance money that she had been paid when my dad died two years before.”
Bailey took the cash as a director’s loan but hasn’t managed to repay it yet.
“It’s been 11 years and still I barely pay myself to keep cash in the business,” she says. “If we start doing well, I’ll pay her back, or if I sell, I’ll repay the investment and more. She doesn’t ask for it and she’s just happy that she can support me.”
Many entrepreneurs find the pressure of accepting parents’ cash highly motivating.
“I feel like I can’t let mum down,” says Bailey. “That drives me forward and gets me through tough times.”
‘My father’s investment has grown 10 times’
Doshi relocated to Indore, India, and pivoted Remigos to focus on foreign exchange transactions – similar to Travelex.
“We are now a team of six, and we are profitable and growing, but compared to my ambitions, I still consider it a moderate failure,” he says.
“When I opened my office, I didn’t invite my family. I thought, ‘What’s the point? It might not last’. But in the past year, my shareholders – including my father and uncle – have seen the value of their investment grow 10 times.”
“There’s always that nagging voice in your head – can I actually do this?” adds Nuruzzaman. “Mum invested more than money, she invested her trust. It made me even more determined to succeed.”
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