Your friend is lucky to have a friend that is willing to tell them the truth; most people are cowards when it comes to saying the most important things until it's too late. We're pretty much trained from birth to tell people what we think that they want to hear because it feels good to tell someone that they're brilliant. Giving someone the truth even if it's bad feels awful. If we only ever tell someone that their idea is great, what do we do when their next idea is actually great? "This one is really really great!" "Last time I was lying but this time it's actually great!"

I strongly recommend the book Difficult Conversations to everyone, period. It's one of the best books on negotiation that have been written in the past 20 years. It's very hands-on and practical, and after reading it I immediately felt like I had levelled-up in all of my communications. It made giving feedback much simpler.

http://www.amazon.com/Difficult-Conversations-Discuss-What-M...

Instead of telling someone that their idea sucks, you should instead tactfully tell your friend that after consideration you don't think his idea will survive a customer development process. Then suggest he reads The Four Steps to the Epiphany or The Lean Startup (or paraphrase the important concepts) and urge him to validate his concept before becoming too emotionally invested, lest he invest in a solution in search of a problem. Dane Maxwell makes a great point about retiring from having ideas in favour of what he calls "idea extraction":

https://www.youtube.com/watch?v=a2F-2-I2-5k

Your friend should remember that a startup is a temporary business structure that exists only to prove or disprove a hypothesis about a market opportunity in the fewest number of steps (time, money, resources). You don't say why his idea will never work (my wild guess is that it's probably a two-sided marketplace, which is near-impossible to launch because it's actually two businesses at once that both need to succeed at the exact same time == marketing $$$) but rookie founders are often trying to do WAY too much. Maybe there's a gem of an idea there that's good, and it just needs to be simplified to its essence.

You might ask your friend "why you?" both because he might not have any business starting this company where anyone person might. Investors like to see an unfair advantage; wealth, political connections, celebrity status are all examples... but the best is having someone on your team that has deep experience in the domain. Starting a real-estate site and nobody on your team has worked in real-estate? Good luck.

Also in the "why" category is a literal "why are you doing this?" question which many people glaze over. Sometimes people just have a flight of fancy and do things that seem like a good idea without it actually being something that they truly care about. Aside from being a recipe for disaster, Simon Sinek explains that people don't buy what you do, they buy why you do it:

http://www.ted.com/talks/simon_sinek_how_great_leaders_inspi...

Finally, you might want to explain to your friend how an investor evaluates a startup. In order:

1. Market opportunity
2. Team
3. Traction
4. Product

Most founders HATE this because they don't want to confront that product is the least important criteria for a term sheet. Obviously you need a great product; that's table stakes. Investors have to first be convinced that there is a real market opportunity, and it has to be big enough to matter if the company succeeds. Bad pitches start with a focus on the product and promise that the market opportunity is there. Good pitches are all about how you've put together a great team to attack a large, demonstrable market opportunity. Great pitches are about great teams with a great opportunity that have demonstrated growth through traction.

In the end, products frequently change and investors know this. Very occasionally you can convince an investor that your product vision is so important that it needs to exist even though you have a questionable market opportunity, an unknown team and no sales to date. However, at this point you're actually competing with every other startup pitching that investor because no matter how brilliant that they think you and your idea are, they have a fiduciary responsibility to the LPs to make the best investments that they can. If a VC backs a product they like over a boring product with great traction, team and opportunity, then they are not a very good VC.

In the end, most startups fail and your friend is awesome for being willing to try anyway. Despite his fancy MBA if this is his first rodeo, he owes it to his future self to be honest about what he's doing. He should spend a year at another startup learning by osmosis before he tries to start up.

This is all strong opinions which are strongly held. I think having strong opinions is one of the most valuable things someone can do. In fact, my job is to tell important people awkward truths and anyone who suggests you should not "pile on" negativity is not someone you should go to for startup advice.