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In your example of 'an investor who waits like that is going to end up paying a much higher price', the visionary investors who said yes to the convertible note will get a very similar price (20% discount?) for taking all that risk.

Put yourself in an investors shoes: Which round would you want to invest in? Wait and see all the progress and pay 20% more or invest early and in a great scenario pay 20% less or in a worse case scenario see it go nowhere?

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If you're not a top top tier investor, you won't even get in in a successful company's A round at the market price. Especially if you're looking to invest $10-25k. Why should someone bother taking ~10 x $15-100k from random people when KPCB or Sequoia would be happier if they could add an extra $1mm to their investment to bump themselves up 5-10% percent in ownership?

If you approach a company with which you have some connection early on (especially as an angel, especially in the same domain you are an expert, especially if you know the founders), you might be able to get in by offering favorable, no-hassle note terms early on.

Steve Jobs can always buy at the market price (or even at a discount), but even though I narrowly qualify as an accredited investor, there is no chance I'd get into a hot deal for $15k myself once it's at the A round stage.

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