Not that you should actually let your mom invest in your startup, but if she insists that she wants to be in on the “A-Round” she’s going to get crushed on the professional B-Round.

We talked earlier about VC term sheets and about how you can’t really negotiate your term sheet much at all. So what does that mean for your Angels who bought in an A at $5M pre-money?

Better hope they are as unqualified as your lawyer let them be for SEC purposes. Because they’ll just look at the $10M pre-money and think they doubled their investment. Given the grind, warrants, and preferences the VC’s will insist on it’s more like they have 10% as much juice. If the company is *really* worth $10M pre-money now that’s cool and it was almost certainly not worth $5M before, so it’s hard to say if they now finally have an ownership stake in something real or not.

There is another interesting issue in here - how much money *did* you raise? There is this mantra that people have: look for money early. And it is true. But you still don’t get the money until you’re basically broke anyway. Think about it from the VC’s point of view - would you give you money before you really needed it?

Wrong answer. Remember, they want a business that will sign the worst possible term sheet. When will you do that? When you have to make payroll off your home equity line. At that point you’ll really sign anything.

So I would suggest raising a small(ish) amount of money during your angel round (if you raise at all) so that your burn rate stays as low as possible No need to take a bigger hunk of your life’s savings (remember, you’ve already burned Mom and her bridge club) than necessary to make payroll and rent.

The other good part about being broke is that it teaches you to be cheap. Copier? Stupid, get a cheap fax machine. Coffee service? Mr. Coffee from Wally World and Sams Club blend. Desk from the supply guy? Hello, used furniture or Sams/Costco. All this will be good training for when you’re running tight on cash.

This has been a bit rambling, but it’s all linked in my head. Take money from Angels with the idea of getting pro money and you’re screwing them. If you have a lot of money you’ll just spend it faster. Cheap is good. I see the thread, do you?