In principle this seems pretty cool, but the gap between what's communicated on the website, and what's actually contained in the 'Shared Earning Agreement' [1] makes me concerned this might be good marketing on a fundamentally predatory investment agreement. This could very well be a completely unintentional idiosyncrasy, so I don't want to be too accusatory, but the implication of the terms needs to be laid out more clearly on the website, if this is simply an oversight.

The single biggest red-flag is the fact that the equity stake vests in company sale or priced-raise as unpaid return cap (a multiple of 3-5X investment) over valuation cap. What this essentially means, is that in the scenario that you raise more money or sell the company before you've paid off the 3-5x multiple of the investment, then the investment essentially vests as if the valuation cap was 3-5x lower than what it was actually set at.

This probably seems abstract, so I'll make it vividly clear with an example. Let's say you raise $200k on a $2 million valuation with a 5x return cap on an SEA. Business goes well, a year or two goes by, and you either sell the company or raise more capital at a $10 million valuation, having in the interim say paid off $200k of the agreement from earnings. With 4x still outstanding. Suddenly, likely to your surprise, that $800k (4x investment amount) vests into equity—at the $2 million cap from the original agreement. In other words, Earnest Capital suddenly, to your surprise, owns 40% of your company. If you hadn't monetized at all and paid any off, this could be a full 50% stake.

Even if you run the numbers with the more conservative numbers in their document—is it clear to people that a $150k investment at a "$3 million" valuation could convert to a 15% equity stake in your company?

I'd love to see how this could be revised to address this issue, and I'd love to see the website more clearly communicate the equity implications. As of now, I can't help but feel that this is double-dipping, predatory investing, that is getting heaps of praise on HN due to clever marketing around tapping into the trend of anti-VC and indie-hacking, that will ultimately lead to some very frustrating experiences for first-time entrepreneurs that didn't fully comprehend the terms they were agreeing to.

Tyler—please prove me wrong and fix this thing. Or, since IANAL I may have completely misunderstood the document, in which case—screw me, my apologies—but please explain how it actually works :)

[1] https://docs.google.com/document/d/1MoLiH_VnhX-0vfZ1zgMSfpcI...