If you're a college student and you put 1k into your friend's startup, is there a risk that's actually a negative signal for future investors? Do investors in a real series A want a cap table that has a bunch of friends and family chipping in a grand, or are they just going to ask to wipe the slate clean?
It doesn't matter much if the company is generally VC fundable or doing well. Ideally you have investors that can help you and the company, but if you have few friends there too, no-one should care.
We raised some money from friends, family and angels at pre-seed, and at seed & series A, the VC didn't have single questions the cap table.
But the companies should have legal counsel, and try to use the standard YC SAFEs not to give people some weird terms. Also as a startup founder, you should make clear to family/friends/non-professional investors that investing in the startup is very risky, and as a minor investor they don't really have any rights as an investor, except hopefully have some returns for their investment.
There is some horror stories where someone gets their dentist as an investor and they start calling you every week about updates or show up at the office to chat about the business plan.
Your small investment is not, by itself, a negative signal. However, a lot small investors can lead to headaches down the road as once you pass the 99 investor threshold more regulations apply. Also, dealing with a bunch of investors is a PITA.
My experience with this, though this may not be the consensus view, was that participation from friends/family was generally a good sign, since founders clearly believe in the business to the point of pitching their friends to invest (and getting deals closed shows some evidence of sales ability).
