We all talk about friends and family money as an important source of startup capital, but before you grab that cash from mom and dad, you might want to consider why it may not be a good idea.  Here are the top five reasons why you shouldn't take money from relatives.

1. My parents believe in me and want to do this.  Of course, they believe in you - what they believe is that you're a good person so you would do nothing less than take their small investment and turn it into a fortune that will take care of them for the rest of their lives, right?  Remember, to your parents you're always a kid--even if you're 45!  So, if you have their money, they're going to watch it and you like a hawk.  That sounds like fun, doesn't it?
    
2. Do you really want to tap grandma's retirement account?  Yes, I know, grandma said she was going to leave it to you anyway some day, but she's 75.  She's been into yoga and might actually live another 25 years.  Do you want to support her when your lose her money?  Do you want the entire family to remind you how you lost grandma's money?  That's a guilt trip I wouldn't want to take.
    
3. My partner is my best friend and she wants to invest.   Unlike your relatives who will always be in your life to remind you of what you did or did not do with their money, do you really want to lose your best friend forever over money?  It scares me to see entrepreneurs choose their best friends as their financial and business partners.  If things go bad, you hit the jackpot--you lose your business and your best friend AND don't forget, your relatives will all remind you how you lost their money too. 
    
4. You pay for it for the rest of your life - Part 1.  Picture the conversations at the family Thanksgiving dinner every year from now until eternity. 
   
   Uncle Bob: "Hey, how's my investment looking?" 
   
   You:             "Well, Uncle Bob, we're doing our best, but there aren't as many customers as we thought, and it's pretty slow."
   
   Aunt Jane:   "See, Bob.  I told you this kid should have listened to me.  If he had, we'd be rolling in dough right now. No one ever takes my advice."
   
   Dad:             "Son, let's sit down after dinner and develop a new strategy for the business. I have a plan for how to turn this around."
   Yada, yada, yada...
    
5. You pay for it for the rest of your life - Part 2.  The worst happens. Your business fails and you lose all your investors' money.  Picture Thanksgiving (if they invite you) forever.
   
   Uncle Bob:   "So, how many other people have you cheated out of their hard-earned money lately?"
   
   Aunt Jane:    "Bob, if you had listened to me, we would have never invested, and we would have been able to send our little Mary to that private school."
   
   Dad:              "Son, we need to talk about how you're going to help Grandma get by.  Things are pretty tight now that half her retirement money is gone.

Pretty grim, isn't it?  If you do ignore these warnings and take the money (some people blissfully think their situation will be different), at least do it with legal advice so when the problems occur (and they always do) you've got the long arm of the law standing next to you.  And you'll need it because Aunt Jane's coming after you.