It’s Not Introvert v. Extrovert. It’s Whether You Can Sell.

TL;DR: People from various intellectual/technical backgrounds tend to over-value IQ and undervalue EQ; meaning that they neglect just how crucial communication/sales skills are for executives/founders, especially a CEO.

I spend a good amount of my time training lawyers not only on how to use technology effectively (because lawyers are second only to doctors in sucking at tech adoption), but on the key ‘soft’ skills that underly client satisfaction. As a profession, lawyers dramatically over-value their credentials and under-value basic human skills like the ability to charismatically start, lead, and end a serious conversation. But when you step back and analyze how lawyers perform throughout their careers, it becomes extremely clear that far less ‘intelligent’ lawyers are the employers of lawyers with significantly better credentials.

Why would that be? Because for lawyers, legal skills get you a job, but communication skills get you clients. And without clients, no one has jobs. Any lawyer who wants to move from being a “worker bee” to leading client relationships needs to self-critically assess and devote serious attention to her/his communication skills: reading people for their pain points/values and adjusting your message, building rapport with diverse people, speaking crisply and confidently, etc. And the exact same can be said about a founder who wants to be and stay CEO.

Everything is Selling

When investors want to discuss investment, when employees want to discuss employment, or when key early customers want to discuss the product/business, whom do they ask for? The company’s technological savant? No. They want to talk to the CEO. The 3 core jobs of a founder CEO are to find customers, recruit employees, and close on investment. All three of those require strong sales and communication skills, because 90% of the work is deep, serious conversation. As the company scales, those tasks become more segmented, but at early-stage the CEO, and only the CEO, can get them done effectively.

All the time I see founder teams full of MIT, Stanford, etc. technical degrees, and a CEO who went to an unremarkable school. But 5 minutes into a conversation with them you know exactly why he’s CEO. He can sell. And I’ll see VCs who are fine keeping X founder as CEO, but insist that Y step aside for an outside CEO. Why? Because Y can’t sell. Sure, I may be over-simplifying a bit, but not by much. Assuming you aren’t dealing with a VC who always replaces founders purely for control purposes, whether or not a VC trusts you in the CEO seat often boils down to whether you can look them straight in the eye and convince them, through well-articulated conversation, that you are ‘CEO material.’

Sales Skills ≠ Extrovert. Find a Coach.

Like any other skill, sales skills can be learned, practiced, and taught, but it takes honest self-criticism and time. And they do not even remotely boil down to whether or not you are an extrovert. Shyness/social anxiety/bad communication are dysfunctions. Introversion is not a dysfunction; it’s just a personality orientation. Sales/communication skills tend to come more naturally to extroverts, but there are extroverts who are terrible at sales (often because they are glad-hander loudmouths), and there are introverts who are fantastic at it. Apart from self-practice, there are excellent executive coaches who can be engaged to help founders improve their ‘presence’ in conversation.

By no means should the above be interpreted by smart, technical founders that they absolutely need to go out and find a schmoozer MBA to put on their team. The best lawyers (and executives) are extremely technically smart and know how to communicate. It should, however, be read to mean that you should rid yourself of the delusion that your technical skills/intelligence alone will ensure your position on your company’s executive team. ‘Soft skills’ are at least as important as ‘hard’ ones, and the faster you improve yours, the greater chances you’ll have of getting customers, employees, and investors to not only ‘buy’ your product and company, but ‘buy’ you as an executive as well.

Why Your [Specialist] Lawyer Sucks

TL;DR Nutshell: A common complaint from startups about their law firms is that, while they like their corporate counsel, the ‘specialists’ (patent, employment, benefits, export, etc.) that they end up working with suck. The core reason for this usually has to do with the incentives of large, outdated law firms to cross-sell their poorly-fitted specialists, even when better suited alternatives can be found elsewhere.

Background Reading:

Here are some very common complaints I’ve heard from funded startup founders about their law firms:

  • The patent lawyer I got connected to knew nothing about the background technology of our product. I spent half a day explaining the basic tech/science, and frankly had to do all the legwork myself.
  • The benefits/ERISA lawyer I spoke with took me through all kinds of corner cases/issues that seem far more relevant to a large company than to my startup, when all I want is an off-the-shelf equity plan and to grant a basic employee option.
  • I e-mailed the employment law specialist they referred me to about a time-sensitive executive termination issue, and it took 5 days to get a response, and it ended up being a junior lawyer they ‘throw’ to companies at my stage.
  • My TOS needed to cover some touchy healthcare privacy issues because of the nature of our (med-tech) product, but the guy my lawyer sent me to could barely tell me the basics of HIPAA.

Specialists and Sub-Specialists

One of the most important concepts founders need to understand in interacting with lawyers is that lawyers, just like doctors, have specialties and even sub-specialties; at least the good ones do. Corporate law is a specialty. Startup/VC Law is a sub-specialty of corporate law. There are also energy-focused corporate lawyers, healthcare-focused corporate lawyers, etc. The sub-specialties available in a city mirror the types of industries that dominate the local economy. That’s why Houston startups often use Austin tech/vc lawyers, and Austin energy companies often use Houston energy lawyers.

If you work with a generalist lawyer who dabbles in a little real estate, corporate law, litigation, and maybe does a few tax returns on the side, you’re asking for a world of pain if you’re building a scale-seeking tech company. But even if you work with a general corporate lawyer, failing to work with one who focuses on technology and venture capital (sub-specialty), you will waste time and money.

In the end, it’s all about incentives. 

OK, so now you understand that depending on the issue, you need corporate, tax, patent, trademark, employment, etc. etc. specialist lawyers. The question then is: which one should you use? Large, traditional law firms (BigLaw) always have the same answer: “use ours!” Nevermind that the benefits lawyer I’m sending you to spends 95% of her time talking to billion-dollar companies and will take 10 days to respond to your itty-bitty (to her) issue. Nevermind that “my patent guy” has a BS in chemical engineering and still uses a Blackberry, and you’re trying to patent a piece of consumer hardware. Nevermind that the lawyer I just sent you to keeps (as compensation) only 20% of the $650/hr he charges you, and there are far smarter lawyers in his specialty at a boutique charging half his rate.

Two law firm concepts: “origination credit” (I make money off of the lawyers in my firm that you use) and “cross-selling” (my firm expects you to use our firm’s specialists) are at the core of why so many startups end up wasting time, energy, and money dealing with specialist lawyers who (for startups) suck; because they are either over-kill, not responsive enough, or simply unnecessarily expensive.

Ecosystem v. BigLaw

You would think that, as a startup/VC lawyer at a boutique law firm, I would always tell companies that they should avoid BigLaw and choose focused boutiques instead (the “ecosystem” I write about). You’d be wrong. No matter how much disruption occurs in healthcare, pushing medicine out of hospitals and closer to the patient, you will always need the Mayo Clinics of the world. In that sense, BigLaw still “works” very well in a very specific context, and that context is very large, complex M&A transactions and IPOs.

We regularly tell clients that, while our senior partners have closed and managed $750MM, even billion-dollar deals as partners in BigLaw, boutique firms are institutionally not designed for fast, complex, very large transactions requiring armies of lawyers and other staff who can be rapidly deployed onto a large deal. That being said, the vast majority of startups, even successful ones, will never, not even in their exit transaction, need those kinds of resources. 

Right-Sized Lawyers. 

The “max out” size of boutique firms varies with their structure and the credentials of their attorneys (particularly partners, who manage the large deals). At MEMN, we say about $400MM is where our model usually stops making sense, and we’ll even assist a client in finding successor counsel to handle that size of deal. At that point, you’re probably not worried too much about your legal bill as a proportion of the overall transaction proceeds, and the players you’re working with (particularly I-Bankers in IPOs) will often require you to use a short list of brands simply for marketing and insurance purposes.

But a $100MM acquisition? $200MM? With the right boutique corporate partners running the deal (trust me, you want real partners running your exit; read bios), and the right specialists chosen for the project, wherever they are, that is not (and has not been) a problem. The newly emerging ecosystem of top-tier boutique law firms can easily thrive while still being totally honest about its limitations. It cannot represent Uber. Uber needs BigLaw. But there are plenty of successful tech companies who aren’t Uber but still need serious legal counsel.

If you have decided that you want and need BigLaw, my completely honest suggestion to you is that you go all-in and choose one of the very small number of Silicon Valley based brands that regularly represent the tech unicorns of the world. While you will still deal with several of the “poor fit” issues that plague young startups using over-sized law firms, those firms are the most likely to at least have specialists and sub-specialists who understand issues faced by technology companies, and they at least try to work well with startups.  You’re “locked in,” but at least you’re locked into a place with lawyers who can competently address your needs.

Choosing a BigLaw firm that is not one of the top tech brands will be like going on your once-in-a-lifetime luxury off-roading trip in the mountains, and buying a $200K Ferrari for the task. Your friends (who aren’t morons) will show up in souped-up Range Rovers. If you’re going big on bling, at least do it correctly.

For the rest of the world’s founders who need serious legal counsel, but honestly don’t see themselves needing the institutional resources of BigLaw any time soon, the emerging boutique ecosystem (which is thriving outside of Silicon Valley) offers a serious answer to the “my specialist lawyers suck” problem: well-compensated, top-tier, responsive lawyers at right-sized firms, chosen not because of background economic incentives, but because they are the right lawyers for the job. 

Rich v. King: The (Core) Founder’s Dilemma

TL;DR Nutshell: Much of the tension between founders and outside investors lies with one question, highlighted (years ago) by Noam Wasserman (HBS) as the core “founder dilemma”: do you want to be rich, or do you want to be king? When both founders and investors are honest with each other (and themselves) about their feelings about, and approach to, this dilemma, their relationship ends up running far more smoothly.

Background Reading:

Rich or King

In the majority of circumstances (statistically) the wealth accrued by entrepreneurs is inversely correlated with their percentage ownership stake in companies. In other words, founders who give away more equity and control in their companies (to other employees, investors, etc.) end up, on average, building larger, more valuable companies, and therefore become much richer than founders unwilling to give up control. That inverse relationship is the foundation of what Noam Wasserman, a professor at Harvard Business School, calls the “Founder’s Dilemma.”

Obviously, when any particular company (in isolation) is extremely successful, founders are able to maintain more control and ownership relative to companies that are less successful. We all know stories about the (rare) Facebooks of the world in which founders have maintained significant control through many rounds of funding and even IPO.  But overall the types (categories) of businesses in which entrepreneurs give up control in order to attract capital, talent, and other resources will grow much much larger (and enrich the founders) relative to the types of companies in which entrepreneurs maintain a tighter grip.

This is why Mr. Wasserman says that if founders want to avoid significant headache and heartache in the course of building their business, one of the first questions they need to ask themselves, and be honest about, is: do you want to be rich, or do you want to be king? Because very very very rarely can you be both.

Some founders legitimately care less about money than about ensuring that their business stays in alignment with their long-term vision/mission. They certainly want to be successful, but a removal from the leadership position in their company would, in their mind, mean personal failure, no matter how much gold they can expect to line their pockets with.

Other founders want to retain control/influence in their company as long as they feel that doing so will increase their chances of becoming financially successful, but the true, primary end-goal is financial success, and they will willingly step down if they feel someone else can scale the company better and faster.

Kings and VCs Don’t Mix

If you are very heavily a “King” founder, you need to think very very carefully about whether you should take institutional venture capital at all. VCs fall along a spectrum in terms of how much deference/respect they give to founder CEOs. Some (the good ones) will assume a coaching perspective, respecting a founder CEO as the head of the company and pushing her/him to learn and become a great leader. Others (the bad ones) will move as fast as they can to undermine founders and fill management with their handpicked roster of outsiders. The best way to find out who the Coaches and Underminers are is to ask people (privately and off-the-record) who’ve worked with them, particularly other founder CEOs.

However, while the best VCs give founders real opportunities to learn and excel, every-single-one will replace a founder if/when it becomes clear that doing so is required to continue scaling the business. Why? Because VCs are profit-obsessed vultures? No, because they have bosses who hired them to make them money, by achieving big exits. It’s their job.  So even if you have the best, most respectful set of VCs on the planet, the clock is ticking once that money hits the bank. If you can’t handle the thought of not being CEO of your company, no matter how large it gets, don’t take VC money. Ever.

The Jungle, The Dirt Road, and The Highway

What many first-time founders don’t realize, though, is that as many startups scale and become large enterprises, there often comes a time when a founder CEO wants to be replaced. Jeff Bussgang’s three stages of companies: the jungle (earliest stages), the dirt road (early scaling), and the highway (mature company/late-stage growth) help explain why.

To be a successful founder, you usually need a personality that thrives in, or at least is highly capable of handling, chaos (the jungle). Meetings, committees, structure, process, reporting obligations, policies, policies on meetings, meetings on policies, etc. are often the exact kinds of things that founders are avoiding by starting up their own companies instead of taking jobs at BigCo. They thrive in following their intuition/judgments, tackling tough problems, and being on the ground strategizing about product and selling the Company’s vision.

But as companies become full-scale enterprises with hundreds of employees, all of that “structure” becomes necessary. You simply cannot run a 500 employee multi-national company like a Series A startup. Great founders often succeed in the jungle, and thrive on the dirt road (when the company is a startup), but start feeling suffocated, uninspired, and disengaged on the highway. And of course, professional CEOs are the reverse: they are trained to keep the rocketship steady and fueled once its cleared the roughest atmosphere, but their skillset breaks down if required to operate in the iterative, intuitive, grassroots environment of early-stage companies.

“Rich” founders who understand their strengths, and when those strengths are no longer optimal for the stage of their company, are able to actively participate in the executive succession planning of their companies, rather than putting up a fight with their Board.  Some decide to completely step away from the company they’ve built in order to go build something new. Others will take a role in their company that leverages their strengths – removed from the day-to-day processes and bureaucracy of the enterprise, and focused exclusively (as an example) on higher-level product and strategy.  Some founders will (happily) make the transition between jungle, dirt road, and highway without giving up the CEO title, but those are few and far between.

The important thing in all circumstances is that founders not fight the reality of what it means to take on institutional capital and build a large, scaled company. Work within that reality to achieve financial and personal success. Know yourself. 

Start Off With Transparency of Values and Vision

Control-freak founders are not alone to blame for the ‘founder’s dilemma’ dysfunctions of the VC-founder relationship. Certain VCs fail to be upfront with founders about their expectations and style of corporate governance. In order to “get the deal,” they’ll talk up how supportive and founder friendly they are, and once the cash is deposited immediately start running through the playbook described in How Founders Lose Control of Their Companies A founder who wants to be King and a VC who pretends (temporarily) to be OK with that is a perfect recipe for dysfunction at the Board level, which usually ends up destroying value.

As trite as it sounds, honesty and transparency go a very long way here. Founders should be open about their vision for the Company, their expectations for how they’ll interact with their Board, and their attitude towards when and how to recruit outside management.  VCs shouldn’t beat around the bush about what the job of a venture capitalist is, and their approach to Board governance and executive recruitment.

The narrative of the founder CEO pushed out by VCs he now hates isn’t the only narrative out there. There are plenty of success stories of founders who built strong, trusting relationships with investors who still did their jobs as VCs and ensured professional management was brought in at the right time. It just depends on the people.  Building and maintaining trust is hard. But so is building and scaling a company. Cut the BS, communicate like adults, and then focus on building something awesome and getting rich, together. 

When LLCs Make Sense for Startups

TL;DR Nutshell: In the vast majority of instances, tech startups are best served by starting out as Corporations (C or S-corps, but usually C-Corps) on Day 1, and lawyers suggesting otherwise are usually generalists who lack tech/vc-specific domain expertise to understand why. However, there is a narrow set of circumstances in which LLCs make sense for a startup.

Background Reading:

This post is about the “almost” part of that tweet. But to get there, it’s important to address the “simpler” and “tax efficient” aspects, because those are the two core reasons that I often hear pushed onto founders for why they should be LLCs.

LLCs may be simpler generally, but Tech Startup LLCs with investor capital and equity compensation never are.

Here’s a hypothetical: Imagine you’re an athlete who’s signed up for a football camp held in Boston in the middle of February. Your general knowledge of Boston weather tells you that it is going to be a** cold. You ask a few other people with knowledge of Boston, including me (I went to law school there), and receive confirmation that Boston is a** cold in February. So you show up to the camp with only your winter gear… but it turns out the camp is entirely indoors in a heated facility. Whoops. Should’ve asked someone with true domain-specific knowledge of that camp, not just people with general knowledge. 

That, in a nutshell, is what happens when lawyers and other business people tell tech founders to use LLCs. LLCs are extremely common in the general legal world. For simple operations with one or a small number of owners, they are by far the dominant legal structure, because they usually are simpler. However, for tech startups, who very often (i) use equity as a significant part of their compensation for employees/service providers, and (ii) often raise capital with multiple equity classes, complex preferences/rights, etc., things get extremely complex under an LLC structure, much more so than with corporations. The amount of tax and legal analysis that has to be done to issue equity compensation and/or raise capital in an LLC is (without exaggerating) 10x that of a corporation.

So, if your plan is to raise capital and use equity as a form of compensation for employees and contractors (which is usually a hallmark of a tech startup), do not delude yourself for a second that an LLC will be simpler than a corporation. 

The “Double Tax” issue usually only matters if your startup is a “cash cow.”

Yes, in a general sense LLCs have one layer of tax and C-corps have two. That is another reason why (as stated above), LLCs have become a very dominant legal structure, not just for simple companies but also for many large businesses as well. Again, though, context is key. The “additional layer” of tax that corporations face is on net profits; after accounting for expenses, including salaries. No net profits, no corporate tax. So if a startup is going to be generating substantial profits (taxed once) with the end-goal of distributing those profits to shareholders (taxed again at individual level) as a dividend, the two layers are a problem.

But how many high-growth tech startups do you know that, instead of reinvesting profits for growth, pay profits out as dividends? Not many; certainly not in the first 5-10 years of the company’s life. Most high-growth tech startups deliberately operate at a net loss for a very long period of time, and therefore (i) aren’t worrying about taxes on net profits, and also (ii) are taking advantage of those losses at the corporate level in a way that may not be even use-able on the individual level. This, btw, is also why S-corps are usually not very helpful for tech startups either.

And to add an additional wrinkle: in an acquisition, corporations often have the ability to do tax-deferred stock swaps, whereas LLCs don’t. So, in short, the “LLCs save a lot of taxes” perspective, while generally correct, is usually misapplied to tech startups by people who simply don’t do enough startup/vc work to give sound advice. Yes, VCs often push companies to be C-Corps (read the background articles), but VCs are hardly the only reason why the C-Corp structure is used in tech. 

LLCs therefore make sense for tech startups that:
(i)
expect substantial net profits very early on;
(ii) aren’t planning on raising institutional venture capital, and/or
(iii) aren’t planning on using equity to compensate a lot of people.

Lots of net profits early on (rare)? The single layer of tax may be worth it, and even institutional VCs sometimes are willing to accept the complexity of an LLC to take advantage of the tax savings.  Not planning on raising VC money any time soon? Other types of non-tech investors are usually more comfortable with LLCs than VCs are. Not planning on paying your employees with equity? Then you’ll avoid the tax nightmare of issuing LLC equity to dozens/hundreds of people.

Few tech startups fit the above scenario, and that’s why few are LLCs. The classic tech startups that operate (rationally) as LLCs are bootstrapped/self-funded software and app companies with no plans to scale very quickly with outside capital, and large “marketplace” startups for which the actual investment in the technology is minimal relative to the large amount of revenue/profit pushed through the marketplace. For almost everyone else, C-corps are king, and for good reason.

p.s. I am not your tax lawyer, and am not pretending to know the right answer for your specific company. The above is just general knowledge; not legal advice. If you rely exclusively on a blog post to determine your legal structure, without talking to a professional to understand your context, you’ve taken on the risk of screwing it up.

The Best Seed Round Structure Is the One that Closes

NutshellPeople with strong opinions can argue endlessly about whether founders should be structuring their seed rounds as convertible notes/SAFEs or equity. The problem is that the optimal structure for any type of financing is highly contextual, so anyone offering absolutes on the subject should just “Put that Coffee Down” in the Glengarry sense, before they hurt someone.  The X round that closes is better than the Y round that doesn’t.

Complete standardization of startup financing structures has been a pipe dream for over a decade. Every once in a while someone will produce a new type of security, or flavor of an existing security, and proclaim its superiority. The problem, of course, is very much like the problem faced by any product whose founders hopelessly believe that it will achieve market dominance on technical superiority alone: distribution channels, inertia, and human idiosyncrasies.  In the end, a financing is the act of convincing someone, somewhere, to give you money in exchange for certain rights that they value enough to close the deal.  Values are pesky, subjective things that don’t do well with uniformity.

Outside of Silicon Valley and a very small number of other markets, the people writing the early checks are usually not all rich techies in jeans and t-shirts debating the latest startup/angel investing trends on twitter. Even in Austin they aren’t. They’re successful individuals with their own backgrounds, culture, and values, and very often won’t give a rat’s ass about a blog post saying they should suddenly stop using X security and use Y instead.

So let’s start with the core principle of this post: The Best Seed Round Structure Is the One that Closes. That means priority #1, 2, and 3 for a group of founders is to get the money in the bank. Only from there can you work backward into what seed structure is optimal.

SAFEs are better than Notes? Many non-SV investors don’t care. 

This was the same reasoning in a prior post of mine: Should Texas Founders Use SAFEs? To summarize my answer: unless a TX founder is absolutely certain that every investor they want in the round will be comfortable with a SAFE, it’s usually not worth the hassle, and they can get 99% of the same deal by just tweaking a convertible note. Yes, a SAFE is technically better for the Company than a convertible note, and YC has done a great thing by pushing their use. But the differences are (frankly) immaterial if they pose any risk of slowing down or disrupting your seed raise. Here’s what a conversation will often sound like between a founder (not in SV or NYC) and their angel investor:

Angel: Why do we need to use this SAFE thing instead of a familiar convertible note? I read the main parts and seems pretty similar.

Founder: Well, it doesn’t have a maturity date, in case we don’t hit our QF threshold.

Angel: So you’re that worried about failing to hit your milestones and hitting maturity?

:: long pause::

Put. That Coffee. Down.

Debt v. Equity? Do you really have a choice?

There are so many blog posts outlining the pluses and minuses of convertible notes/SAFEs v. equity that I’m going to stay extremely high-level here. The core fact to drive home on the subject is that the two structures are optimized for very different things, and that’s why people debate them so much. Your opinion depends on which thing you value, and that will depend on context.

Convertible Notes/SAFEs are built for maximal speed and flexibility/control up-front. Cost: Dilution, Uncertainty. You defer virtually all real negotiations to the future, save for 2-3 numbers, and note holders often have minimal rights. You can also change your valuation quickly over time, at minimal upfront cost, as milestones are hit. The price for that speed is you’ll usually end up with more dilution (because notes have a kind of anti-dilution built into them) and possibly more liquidation preference. See: The Problem in Everyone’s Capped Convertible Notes You’ll also pay a harsher penalty if your valuation goes south before a set of Notes/SAFEs convert than if you’d done equity from the start.

Equity rounds are built for providing certainty on rights and dilution. Cost: Legal Fees, Control, Complexity. An equity round is more inflexible, and slower than debt/SAFEs, but the key benefit is that at closing, you know exactly what rights/ownership everyone got for the money.  Those rights are generally much more extensive than what note/SAFEholders get. If the business goes south, or the fundraising environment worsens significantly, you’ll pay a lower penalty than if you’d done a note/SAFE. But for that certainty, you’ll pay 10x+ the legal fees of a note round (if you do a full VC-style equity round), and have 10x the documentation. That’s why you rarely see a full equity round smaller than $1MM.

Raising only $250K at X valuation and planning to raise another $500-750K at a higher valuation soon, before your A round, because you’re super optimistic about the next 6-12 months? Note/SAFE probably. Raising a full $1.5MM round all at once that will last you 12-18 months, with a true lead? Probably equity.

Seed Equity is a nice middle ground, but if your investors won’t do it, it’s just theoretical. Series Seed, Series AA, Plain Preferred, etc. Seed Equity docs are highly simplified versions of the full VC-style equity docs used in a Series A. They are still about 2-3x the cost of a convertible note round to close in terms of legal fees, but dramatically faster and cheaper than a full equity set. They are a valuable middle ground for greater certainty, but minimal complexity and cost.

But after pondering the nice theoretical benefits of seed equity, we’re back to reality: will your seed investors actually close a seed equity deal? I can’t tell you the answer without asking them, but I can tell you that I know a lot of seed investors in TX and other parts of the country, including professional institutionals, who would never sign seed equity docs.

There is an obvious tradeoff in the convertible note/SAFE structure that has become culturally acceptable for both sides of the deal. Founders get more control and speed up-front, and investors get more downside protection and reassurance that in the future they will get strong investor rights negotiated by a strong lead.

With seed equity, investors are (like with Notes) being asked to put in their money quickly with minimal fuss, but without the downside protection of a note/SAFE, and with significantly simpler investor rights. Many seed investors see that as an imbalanced tradeoff. Whether or not they are right isn’t a question that lends itself to a single answer. It’s subjective, which means the Golden Rule: whoever has the gold makes the rules.  Can they beef up those protections in the next large round? Sure, but many don’t see it that way, and good luck ‘enlightening’ them when every delay brings more reasons for why the round may never close.

I think seed equity is great, and am happy to see founders use it as an alternative to Notes or SAFEs for their seed raise. But that doesn’t change the fact that for every 10-15 seed deals I see, maybe 1 is true, simplified seed equity. And those usually look far more like Friends and Family rounds – where the investors are so friendly that they don’t care about the structure – instead of a true seed with professional seed money.

When it comes down to getting non-SV seed money in the bank, most founders only really have 2 choices for their seed structure: convertible notes or a full equity round. If you’re lucky enough to get a SAFE or seed equity, fantastic. Go for it. But don’t let the advice of people outside of your market, with minimal knowledge of your own investor base, cloud your judgment with theories. When a team debates what type of product to build, the starting point isn’t which one is technically superior, but which one their specific users will actually pay for. Seed round structuring (like coffee) is for closers.