Published in the San Diego Union-Tribune, May 11, 2026
by Neil Senturia
We have a deadline, take it or leave it, in or out: May 11
When we last talked to Pauline, she was still tied to the railroad tracks. She heard a whistle, but it was faint, and she believed that it was still far away in the distance.
So, for the moment, let’s explore in a bit more detail what exactly the word “financing” means. How (if) you get it is what really matters.
Startups raise a round of financing in a few ways. First, there are friends, family and fools. Usually, that is in the form of a “pre-seed SAFE.” No cap, no discount, no protections, more or less a trust me, hang on and remember Uncle Morty loved both of us equally. An early call on the inheritance.
A SAFE (simple agreement for future equity) has become the most used default option when both parties want to avoid discussing valuation. A SAFE is a nice way of kicking the can down the road and avoiding any significant conflict between a founder who thinks his company is worth $50 million based on the value shown on the back of his napkin and current investor grounded reality.
In other words, rather than argue, “let’s see what the next guy says.” A SAFE is designed to be “founder friendly,” which equates to the investor holding a bag full of air and good intentions. As an investor, I hate SAFEs unless they come with the combination to the vault. As a founder, what’s not to like?
So, the infamous “next guy” shows up to invest, and he is a true venture capitalist, a professional investor. Then you do a Series A legal agreement. This is a grab-your-ankles, at least $50,000 in legal fees with enough fishhooks in this agreement to open a tackle shop on the Bighorn River in Montana.
That discussion of valuation, which has been avoided up to now, takes center stage. From here on in, you need a good lawyer and an iron stomach.
There is also one more money-grab — a convertible note. This structure gives optionality to the investor. He/she lends some money and receives various rights and privileges. He can convert into equity if good things happen or he can ask for his money back when darkness descends and the pitchforks are banging on the front door. This kind of debt is usually considered to be last money in, first money out.
That above structure has its own risks, namely unless the investor is converted into a future equity ownership, but instead asks for his money back, there is always the question — is there any money left to pay him?
Nota bene (legal disclaimer): I am not a lawyer, not in real life and not on television. Therefore, take the above paragraphs with a truckload of salt; hallucinations are included at no extra charge.
Now to the matter at hand.
April 24, 4 p.m.: We have double-straddled with VCs and angels. We have negotiated every model for financing (see above), but there comes a time. That time is now. We send an email to all interested parties that says, “No more making us crazy, no more delays, we are going with a convertible note, very favorable terms, low post-money valuation, lots of goodies in the bag. But there is a deadline, take it or leave it, in or out: May 11.”
Much has been written about “the line in the sand.” If you don’t draw one, the investors will bleed you dry with delays, discussion and demands. But if you draw one, and a large wave arrives and washes the line away, then get your pail and go home.
April 24, 5:30 p.m.: I get a call at home from a competitor, an offer to buy our company. I know the guy, he is rich, smart and has an ego. We set up a demo for the next week. You know that stuff about a port in the storm, begging is good for the soul, put your own ego in dry dock and bring out the lucky charms.
April 25, 3:30 p.m.: One of our geniuses comes up with an idea. A really good idea. A bet-the-company idea. A moat idea. Something no one else is doing. Absolutely brilliant. Sell the company? Are you kidding? Nothing less than $500 million.
Rule No. 663: You can’t make this stuff up.