Betsy Flanagan: I know, there are some pitfalls that people can step into, taking money from angels. What have you seen in that regard and how would entrepreneurs avoid that?

David Hornik: I think at least in the Bay Area, angels understand… There are different kinds of angel investors. There are angel investors who are interested in investing in companies that will likely be ventured backed in the future. And then there are angel investors who invest in businesses because they think that they’d get a return on their investment based on the success and progress of the company with their money.

I think those are very different businesses and, to tell you the truth, I don’t really know much about the folks who invest in a set of stories or a particular idea that can be built out for a relatively small amount of money because this is just not my business. In the venture-backed-startup business, there are a number of very savvy, smart, helpful angel investors that know well how companies raise money in the future. They understand how much equity founders have to have. They understand the process and they understand and appreciate the likely progress of successful companies. And so truthfully, there aren’t that many things that you run into. I mean, occasionally an entrepreneur takes too much money too early at a too low price, and the first earliest investors own a pile of the company and it’s hard to say how the founders of the company could care after raising more money about continuing to drive value in the company.

And so you have to figure out how you get these guys more stock in the company to make sure that they care about growing the business. Sometimes there are extra terms that you wouldn’t have put in yourself. But by and large, angel investors, at least in the Bay Area, understand and appreciate what are reasonable terms and they deserve some credit for seeing early and betting and being willing to take a whole lot of risk that usually VCs aren’t willing to take.