I would say an answer of "yes" is a huge red flag. A good CEO needs to understand risk/reward. VCs are investing in risky things, and thus distribute their cash amongst hundreds of start ups, fully aware that most will go to zero. It doesn't matter because 1 will go to $1 billion.

OTOH, family usually can't afford to lose what they give. They make emotional decisions, not financially rational ones.

If a CEO can't distinguish those entire distinguish those entirely different cases I doubt their financial acumen. You go to VC for moon shots, to the bank for proven business models, and to family and friends to build a family 'lifestyle' and asset heavy businesses (asset heavy so you can recoup some of the money if your business fails).

No one rational should believe that their startup will succeed no matter what. We know, with certainty, that it almost certainly will fail. It's a flutter - a bet on a fabulous future (fabulous in terms of success, making a difference, huge wads of cash, whatever). If VCs expect that kind of naivety, well, you get what you pay for. How many other ways will that CEO be naive?

If this is true, then I'm even more wary of ever seeking VC money than I was before. No way in hell I'm asking my middle-class and lower-middle class family members to support risky venture X. That's the job of the wealthy venture capitalist, who can afford to lose X dollars on my venture (that's the whole rationale behind the "accredited investor" thing, as much as I disagree with the regulation).

If they expect someone else to do their job, I wouldn't want anything to do with them, anyway.

"You are willing to lose my money, but not your friends or family?"

"Yes. Because if I asked my family to fund a business venture, it would be something bland, low-risk, and low-return. Exactly the kind of things you guys can't stand funding."

An investor should be willing to make a "10% chance for a 100X return" type investment, but no, I wouldn't usually suggest that to my friends and family unless the amount of money was not significant to them. I don't think that's a red flag; investors have different risk tolerances for good reasons.

What you describe is a basic application of the Kelly Criterion: https://en.wikipedia.org/wiki/Kelly_criterion

It helps you determine how much of your bankroll you can wager depending on (1) the odds, and (2) the size of your bankroll. It's the same reason why you shouldn't (mathematically) play the lottery (when it's expected value is actually positive) unless you're already filthy rich. The same math applies for hyper-risky startup investing.

...That's kinda stupid. Maybe no one was in a position to loan that much money. Or maybe nobody wanted to? Could be any number of things.

The "No" is to the question, "did you ask your friends and family?"