With all the discussion of Series A crunch, I think it's worthwhile to examine another potential phenomenon: The coming Angel Shakeout. It's been mentioned before, but the explosion of Web 2.0 has created a class of angel investor who a)expects products to be built on the cheap, b) probably doesn't have much operating experience, so not aware of downstream problems when you do (a), c) has unrealistic expectations ("Can I make $1M off a $25K investment in < 2 years?"), and most important, d) has no stomach for sustaining their ownership position as companies begin to raise larger rounds of capital. Not saying that for (d) angels should have the capital to invest pro rata in successive rounds, but many I've encountered don't have ANY capital for a later round. Meaning that by definition they get diluted.

Knowing this, I'm starting to see more and more angels asking companies to do screwy things, not to improve the chances of success, but more aimed at financially engineering the outcomes.

Entrepreneurs need to be wary of this, and find the angels who really are trying to help you build a business long-term. These angels might not have the deep pockets to invest pro rata long term, but the best angels will still work the phones to get other investors in the deal, even if it means they're diluted.

Every entrepreneur should aim for a Don Lucas; Lucas was Ellison's first angel investor at Oracle and years later is still involved with the company.