Adelaide research analyses the impact of family funding.

Adelaide University’s Entrepreneurship, Commercialisation and Innovation Centre has released a study looking at the effects of family funding compared to outside funding such as venture capital. The study was conducted by Gary Hancock as part of his doctoral thesis.

The research found that family funding strengthens rather than harms relationships, contrary to popular opinion. The study also uncovered that this form of funding is more common in Australia than it might seem, with 83% of entrepreneurs in the country seeking investment from a friend or family to launch a company rather than an outside source.

Hancock’s work also states that investments only take place when the family member in question can afford it, and the investment is treated as a joint-vested interest, strengthening ties.

Family funding currently goes largely unreported as there are no specific tax policies supporting such endeavours. The study estimates 1.26% of the Australian gross domestic product accounts for such funding, and calls for a supportive tax scheme.

Gary Hancock said: “Borrowing money from a financial institution for a startup can be problematic because the loan is almost always against the assets of the entrepreneur rather than from a corporate business perspective, therefore the entrepreneur needs to have a means of paying the loan back that is separate from the business venture. Due to tough lending conditions, entrepreneurs often look for funds from other sources including venture capitalists and government grants, with the majority of Australians requiring funds for a new venture borrowing it from family and friends.”