>> To summarize: in a traditional seed investment, the founder is giving up that which is not scarce, and which has a nominal value (stock) for that which is scarce and has immediate value as legal tender (cash). The consequence of this transaction is that he must also accept sharing some percentage of the cash that will come later if he or she is successful. However, at that later point, cash is much less scarce and has less value to the entrepreneur and the business than it had previously.

>> With a SEAL, things are quite different. The investor is providing the founder with cash when it is scarce, but their own access to cash (through payback) comes to this side of the non-linear payout of an acquisition or exit. This means that cash is still a scarce resource. While it is true that the founders themselves are also partaking in cash in the short term, it is because they are actively working on the business and creating more value than they are taking out in the form of cash.

This is just plain wrong. By binding the payback to profit (not revenue) and giving the entrepreneur a lot of flexibility in defining when to allow the (successful) business to become profitable, the investor will only have access to cash when it isn't scarce.

The author seems like a really competent person so, unless they have a bone to pick with the Earnest Capital team, I can't understand how/why they got this so wrong.