"Their pitch is that if your business requires $40,000 then you just need to convince 40 friends to lend $40, each of whom in turn just needs to convince 40 of their friends to lend $40."

Interesting concept but why $40? $80 is just as important of a decision - anyone who would loan $40 would loan $80 IMO - and it would cut the numbers of people required in half. I'd guess that, in this situation, $100 is a significant step that requires a decision - anything less would not.