The section on "Cost of SEAL Capital, in Equity" is mathematically correct, but omits a few key points that make the example unreflective of what would happen in reality. The whole point of the Equity Conversion terms is to keep open the option to raise VC if the founder wants to do so.<p>If after a SEAL, the business decides to raise a priced round at a valuation higher than the Valuation Cap, then the investor has the option to convert to [any unpaid amount of the Return Cap] / [Valuation Cap].<p>If at the time we are negotiating a SEAL this simple math shows the investor would own a giant % that would make a VC round impossible, then it closes down that option and defeats the entire purpose. It's very easy to plug in numbers that generate a result that is extremely founder-friendly ($100k, 3x, $5m cap = 6%) or ridiculous ($250k, 5x, $2.5m cap = 50%).<p>As part of the upfront negotiations, any honest investor would make sure the founders understood how these numbers play out in a variety of scenarios and agree on terms that are fair to both parties.<p>The example in the post is $250k, 4x, $3.5m and with the implied 28.3% the conclusion is "the terms will work out so poorly for you and your new investors that the most likely outcome is new investment never happens" - But by changing the cap to $5m, it becomes 20% (not an unreasonable ownership stake for a very early seed/pre-seed investment). If the return multiple is 3x, we get to 15% which can be further reduced by any payments that might have been made prior to the fundraising round.<p>There are plenty of fair ways to structure these terms. Though I would agree that for founders that are dead set on raising a round of VC in the near future, they should use traditional products like a SAFE or convertible note, which are built for this purpose.