I'm going to disagree and point out that all the horror stories always include people also breaking the regular old cardinal rules of investing. Whether or not

I'm going to disagree and point out that all the horror stories always include people also breaking the regular old cardinal rules of investing. Whether or not they're friends & families has very little to do with it. Don't raise a bunch of money from a crazy person with unrealistic expectations. Don't fund a business you don't understand. Don't invest money you can't afford to lose. Don't do business with people whose character you can't count on in good times and bad. Now, obviously you need to not let your emotions blind your judgement so you can actually follow these rules, but that's always true, whether or not its family. And there's a very good reason to consider family deals: you have deep insight into the psyches of the people involved. (Or if you don't, you're probably not cut out for this kind of investing in the first place.) I have a lot of friends and family I would never do business with, because they don't fit the criteria. But I also have people I would fund in a heartbeat, and I've done it happily. If you're the investor, it comes down to accurately judging yourself. Can you really put relationships ahead of money? If you're the startup, you need to judge the investor by that standard. Are they truly mature enough (and wealthy enough) to honestly not give a fuck about that money if they never see it again?