My issue with startups is this idea that an Entrepreneur can use angel money today and set the valuation of this investment when the VCs come in at a later date. The initial capital is critical to bringing the company to the stage at which VCs are willing to invest. Without this angel capital, the entrepreneur's ideas and hard work are just not enough.
Shouldn't the angel investors get a return on that first round of capital? Entrepreneurs are quick to defend the behaviour by saying "well that is the way it's being done in the industry".
I am not a fan of investing under these conditions. I have done it though with small amounts but I have never made much money following the prevailing wisdom of industries.
This post is a call to myself to wake up.
Written by Michael Bigger. Follow me on Twitter and StockTwits.