Some of the worst personal disasters I have witnessed involved entrepreneurs raising money from friends and family. It can be done properly, but seldom is. Professional venture investors and sophisticated angels understand what risk capital really means. Friends and family usually do not. There are many risks, but here are a few.
The first is that when things don't go perfectly they panic and want to pull money out even when success might be in the future. The second is that they most often don't understand dilution that inevitably occurs when a company is successful and needs more capital for growth, even if it is explained to them beforehand. Finally, when money is lost, relationships can be severely damaged. Look for a paper with some suggestions on how to avoid the pitfalls coming soon on my web site.
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