Good overview of the pros and cons of Friends and Family funding, by Fred Wilson. In particular:
Probably the most tricky part of friends and family financing is that you really don't want to lose money that friends and family have invested with you. And most startups fail so the chances that will happen are high. I would encourage entrepreneurs who take funding from friends and family to be very clear about the risks and downside. I would also suggest only taking capital from friends and family members who can afford to lose the investment.
My personal view is that if you can't fund it yourself, you probably should find something else to do to generate the funds. But if you are determined to raise funding from friends and family, be sure to read Fred's article.
