I recently had a conversation with two 'grand old men' of the VC community regarding an investment they had just completed. It was a small start up which had taken angel money to get going. The terms of that original deal were a simple debt instrument that converted (at a discount) upon the next round.
These two guys were all high five like because they had killed the discount upon conversion. The phase that bugged me the most was: "We made the angels blink and understand the real money had arrived."
To kill angels is to kill off the very source of capital we need in the ecosystem. In this case, it was 20% and the company was doing well. The VCs loved the deal but felt this was a great spot to squeeze a little extra.
Again, what crap.
I argued my point and was blown off as a newbie that simply didn't get it.
My council to you is to protect your angel as we need a viable angel community. One way to accomplish this is instead of a discount, give the angel warrants to buy additional shares at a strike price which gives the angel a reward for being there at the start.
In almost all cases, those warrants won't be negotiated away. Yes, they become part of the cap table of the company and yes, it will impact value conversations. In my opinion, this is a far better way to give angel a true shot at some upside when your company needs additional rounds of funding and the angel can't continue to fund.
Angels are important and everybody in this game needs to understand and respect this.