> angels get equity (series "pre-A"). Set a price. Now the next round values the company at 30M pre -- they get a small chunk of a company worth a lot, and that

> angels get equity (series "pre-A"). Set a price. Now the next round values the company at 30M pre -- they get a small chunk of a company worth a lot, and that has a good chance of being worth a lot more in future. And now angels can say they turned $100k investment at 5 post cap into $600k, where as with case 2 they only get a larger chunk. > All kinds of entities get the same terms on the note. Both get the discount. Yeah, I understand the the terms are the same. I mean that a year in, on an uncapped note both institutionals and angels can't go to their partners/friends and say "We put in $100k into XYZcorp, and now they raised a series A and our stake is worth $2m". They only get to make 25% gains from the discount. Capped notes are ideal for investors, the money amount is too small to justify board involvement from them, so the note sidesteps that while possibly having the best liquidation conversion/ratchet/debt structuring. Capped notes are what everyone wants to see put in place on top of the companies that might turn into unicorns, but they give investors insurance of sorts for lower exit events.