This is a tough one. People that know you and believe in you are often very willing to give you money to pursue your business. They often don’t put you through the rigors of due diligence the way an independent third party does. So in this sense they are a common source of capital for early-stage companies. But there is a catch. Because you have a personal relationship with these individuals, the nature of your relationship is not simply as an investor. Often times they will have higher expectations of you and you may have higher expectations of yourself because of that personal relationship.

 If you do decide to take money from friends and family, make it clear to them that it’s likely that they’re going to lose it all.

When things go well, it can be quite fulfilling. There’s nothing better than providing friends or family a return on the investment. But when things go poorly, those personal relationships can get in the and your own personal feelings about wanting to pay people back can cloud your judgment. So a piece of advice. If you do decide to take money from friends and family, make it clear to them that it’s likely that they’re going to lose it all . They should not invest if this is their last dollar. This does not cure all ills, but hopefully it sets the tone that this endeavor is something that they should look at as all upside because they’re prepared to lose it all.