Netflix co-founder Marc Randolph stated that asking parents for money during the seed stage of a startup is not uncommon. Back then, it wasn't even called a seed round, but rather a friends and family round.

He recalled calling his mother in 2002: she invested $25,000 in the seed stage, thinking he would never see it again, which was enough for her to buy a new apartment. He described it as an incredible feeling.

Randolph put this money back into the company's earliest financing structure: friends and family invested first, followed by institutional investors. The $25,000 corresponded to a stage where the video rental mail business had not yet been proven scalable, not a post-IPO valuation game.

2002 was also the year when Netflix's business and capital shifted. The company had moved from DVD mail subscriptions to the public market, and early personal checks had their first opportunity to be revalued by housing prices.

The mechanism of the friends and family round is that investors take on the highest risk using their relationships, in exchange for a receipt that was almost impossible to price at the time. The recovery of the mother's investment depended on the company surviving to the day when he could call to share good news, rather than the name of the round.

In market mechanics, the ones paying are family balance sheets that can afford $25,000 and accept the risk of losing it all, while the ones selling are founders' equity that has not yet been subscribed by institutions. The event is driven by the company's survival, with funds moving from family savings into the startup's operations; the beneficiaries are relatives who can convert receipts into assets after surviving the seed stage, while the burden falls on later investors who mistakenly treat the friends and family round as a guaranteed return.

Source: Public Information