Friends and Family Funding and Why I'm Dreading Thanksgiving

On the flip side I've seen close family and friends angered at not being given the opportunity to invest in a successful startup, the opportunity instead handed over to "strangers."

It depends on the family. Hell, I drop a couple thou a year helping my retired mother financially, as she has zero money and zero sense with whatever little money she gets. My family has always been dirt poor (and those who are still dirt poor look enviously and somewhat resentfully on me and my one sister who also achieved a comfortable middle class life).

My wife's family, on the other hand, is solidly upper middle class all around. Her grandfather worked from a Kansas dust bowl Depression childhood to a Harvard MBA and probably several million in net worth. Several of them are "qualified investors" in the legal sense and could angel-fund a startup.

But I won't ask them for a cent, not even take it if it was offered. Why? Because they're family, and not blood family at that. If I took investment money from them and it failed, I would be paying for it in non-financial ways for the rest of my life, and my wife would be paying even worse. Even asking would be a tremendous misstep of the delicate dance of family.

So yeah, even if Grammaw and Uncle Barry have twenty grand to invest doesn't mean there's anything "casual" about it.

I should add that I've been "Uncle Barry" too. One of my poor sisters and her daughter tried to get me to loan them ten grand to help start a business, and I refused. Why? Because their plan was nonsense. I think they have a good $20-30k/year idea, which is great, but they were absolutely convinced that it's a $100k business - something I consider impossible upon running various numbers and the limitations of hands-on work. If they're not willing to be realistic about their scope, I'm not going to hand them money to pour down a hole.

Only do this if you expect to make an amount which will get you a few months of runway.

If it is just enough to cover your operating expenses plus a small surplus, it will be very easy to fall into the trap of doing consulting and then creating the product "on the side".

"Egalitarian meritocracy" is relative.

It used to be that going to Harvard was largely a measure of whether you had enough money to go to Harvard. In 1950, the acceptance rate at Harvard from elite preparatory schools was almost 90%.

Today, it's an "egalitarian meritocracy." The acceptance rate is around 5-6%. A quarter of students come from families that make below $80k, and 60% of students receive some financial aid. In other words, a household income of $80k, which is top 30% nationwide, puts you at the bottom 25% mark at Harvard. Further, 40% of students apparently come from households making over $180k (the point at which aid phases out), which puts them in the top 5% or so of households nationwide. The statistics at Princeton, Stanford, etc, aren't any different.

People in the start-up world talk about "egalitarian meritocracy" in the same breath as they say they give explicit preference to kids coming out of Stanford, a place where the median person is from the upper middle class. It's true in a purely relative sense. It's very meritocratic compared to how things were historically, and how things still are in many parts of the world.

That is not to say that these institutions could be appreciably more meritocratic by their own efforts. Rather, when talking about whether a field is "meritocratic" you can't ignore the fact that class and income-based sorting takes place at a much earlier stage in the pipeline.