A massive valuation for a "seed" round can be misleading. Often, insiders have participated in several unannounced, cheaper tranches. The headline number is just the final, most expensive tier, used to create FOMO and set a high watermark for new investors.

Successful founders prioritize cash upfront over potentially larger payouts from complex earnouts. Earnouts often underperform because founders lose control of the business's future performance, leading to dissatisfaction despite a higher on-paper valuation.

To raise its first capital, Tempur-Pedic offered non-professional investors a hybrid deal: a promise to repay 4x their initial investment, plus a small (1-2%) equity stake. This structure de-risked the investment for friends and family while preserving significant founder equity.

Large, multi-stage funds can pay any price for seed rounds because the check size is immaterial to their fund's success. They view seed investments not on their own return potential, but as an option to secure pro-rata rights in future, massive growth rounds.

Y Combinator's model pushes companies to raise at high valuations, often bypassing traditional seed rounds. Simultaneously, mega-funds cherry-pick the most proven founders at prices seed funds cannot compete with. This leaves traditional seed funds fighting for a narrowing and less attractive middle ground.

Seed-focused funds have a powerful, non-obvious advantage over multi-stage giants: incentive alignment. A seed fund's goal is to maximize the next round's valuation for the founder. A multi-stage firm, hoping to lead the next round themselves, is implicitly motivated to keep that valuation lower, creating a conflict of interest.

The rise of founder-optimized fundraising—raising smaller, more frequent rounds to minimize dilution—is systematically eroding traditional VC ownership models. What is a savvy capital strategy for a founder directly translates into a VC failing to meet their ownership targets, creating a fundamental conflict in the ecosystem.

The use of SAFEs has expanded beyond pre-seed, becoming the dominant instrument for rounds up to $4M that were historically priced. This trend simplifies closing a round but creates significant downstream complexity when calculating ownership for employee stock option grants and future rounds.

First-time fund managers often try to differentiate with creative or complex terms. However, institutional investors prefer standard structures (like 2 and 20) because it allows them to quickly compare new offerings to established funds on a "like for like" basis. Uniqueness should come later, in a second or third fund.