I disagree with this approach for angels. I'll approach it from two angles, an investor willing to think through and modify terms, and an investor that wants a

I disagree with this approach for angels. I'll approach it from two angles, an investor willing to think through and modify terms, and an investor that wants a boilerplate set of terms for every deal. In the first case, it's important to think through the shape of the entire return curve. If a company is 100% common stock with no liquidation preference, and you own 20%, your return is linear, $0.20 for every dollar of sale value. As soon as you add preferences, participation, caps, etc, that line is no longer straight. A 2x preference, for example, strongly weights the low value exits (the curve is steeper from O to the 2x amount, then reduces in slope). In the negotiation between the investor and the management team, each side has views of what the ultimate value may be (or what a probability weighted view of potential exits might be), and each side can manipulate the shape of that curve to match his expectations. For example, if the investor is worried about a low priced exit, and the management thinks the company is worth a lot more, a 2x liquidation preference and a higher valuation works for both parties. Investors get more of the exit value at a low price, and management gets more on the upside (because of the higher valuation results in more percentage ownership for them). If both sides understand how these terms work, creative use of preferences, participation, and caps can help everyone get to a deal that works. If, however, one wants a standard set of terms for every deal, I would recommend sticking with straight up 1x non-participating preferred and reducing the number of variables to one: valuation. 2x is usually perceived as not founder friendly and raises unnecessary concerns (whether real or perceived). It also sets a bad precedent for subsequent institutional investors, who will likely ask for 2x as well in order to be on the same ground. If the institutional financing is substantially larger than the angel round (as is usually the case), the angels end up losing by the precedent they set. With the institutional financing in place, the return for the angels is (almost always) better when both institutional and angel investors have 1x, than if both have 2x. Whether or not it is justified, institutional investors are often going to seek "fairness" by having terms on par with (or better) than angels. Setting a precedent with 2x for the angels will lead them to go for 2x as well, which doesnt help the founders and doesn't help the angels.