I just read through the terms in the SEA, and I think you're right about how it works out.

I guess this is an "escape hatch" for companies that start off independent, but then change their mind and decide to pursue traditional VC funding.

YC invests $150k for a 7% stake, with the expectation that you will raise 7 figures and aim for a billion dollar exit. You won't get accepted to YC unless you can convince them that you're aiming for a unicorn. =

I think it might actually be fair to penalize a company if they say they are going to build a sustainable, profitable business, and then they change the rules by aiming for a unicorn. Earnest Capital would be taking on a lot of risk that they didn't ask for, because moonshots are extremely risky compared to a small profitable business that can grow at it's own pace. The founder gets to go for a moonshot and spend all of the money, and they'll likely go bankrupt because moonshots are extremely risky. And if they succeed, then Earnest Capital only gets a $450k return from a billion dollar company. A VC expects a 10x to 30x return for this kind of risk ($1.5M - $4.5M.)

Also the return is capped at 3-5X, so I think these terms are pretty good for the founder. A business loan would be better, but it doesn't come with any mentorship or accelerator program, and I personally won't be able to get one because I live in Thailand (although I have a US company.)

This would be give me a really good boost so that I can pay for a few big projects that I couldn't otherwise afford (redesign, increased marketing budget for ads and newsletters, audits and certifications, and a few features where I could hire some contractors.)

TinySeed invests $120k in exchange for 8-15% equity. So that's like Earnest Capital + immediate Equity Conversion.

The equivalent for Earnest Capital might be a $75k investment with a $3M valuation cap. (75000 * 3) / 3000000 = 7.5% equity if you sold or raised more money without paying anything back. 2.5% if you have less than $75k remaining, and 0% as soon as you reach the return cap. I think that cliff is a bit weird. Earnest Capital would have 2.5% equity even if you only had a single dollar remaining until you reach the Return Cap, then it immediately falls to 0%. I think it would be better if there was a gradual drop from 2.5% to 0% as your remaining payment amount goes from $75k - $0. If I apply, I might ask them to change this term.

I would also like to know if it would be possible to buy back shares from the TinySeed investors. I didn't see anything about that. But for a small sustainable company, I'd honestly be happy to just pay myself a reasonable salary, and pay some dividends from time to time. 8% wouldn't be too bad.

EDIT: Just thinking some more. It would take so long to pay back this Earnest Capital loan! If your company gets to $10k Founder Earnings per month, you'd be paying back $3k * 3 = $9k per quarter, or $36k per year. Even if you only took a $75k investment, it would take you 6.25 years to reach the $225k cap. It's sort of like golden handcuffs, where you can't sell or raise any more money without giving away significant equity (and you would be better off with the TinySeed deal.) On the other hand, if you can get to $10k by the first year, and $100k by the second or third year, then it would be repaid very quickly. ($360k per year).

I think I'm leaning towards TinySeed. But it's hard to weigh all the pros and cons.