Jul 8, 2020 · 1h 42m · top-founders
Tyler Tringas: How Earnest Capital Hopes to Re-Invent Startup Investing
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gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
In this in-depth interview with Nathan Latka, Earnest Capital founder Tyler Tringas shares his journey from venture failure with SolarList to bootstrapping and selling StoreMapper. He explains how these operator experiences led him to create Earnest Capital, introducing the Shared Earnings Agreement (SEAL) and a subscription-based fund model to support sustainable, profitable software businesses.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Nathan holds 24.5% of the talking time here. How this is scored →
Nathan as informed peer 7.1 Guest teaching 3.1 Guest disagreement 2.1 Nathan pushing back 4.4
speaking balance: gold is Nathan, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 1:09:47 Tyler rejects Nathan's characterization of IRR
Tyler directly interrupts and rejects Nathan's claim that focusing on IRR means Earnest is playing the traditional VC paper markup game, distinguishing paper IRR from cash internal rate of return.
Hardest push from Nathan ▶ 1:02:10 Nathan presses on the prepayment restriction clauseNathan quotes the published SEAL legal text directly and challenges Tyler on why Earnest includes a clause preventing founders from prepaying to buy out investor equity during breakout success.
Biggest teaching moment ▶ 1:03:30 Tyler clarifies the anti-gaming purpose of the prepayment ruleTyler clarifies Nathan's misunderstanding by explaining that normal profit distributions cannot be blocked, but the clause stops founders from taking out third-party debt right before a massive acquisition just to eliminate Earnest's upside.
Nathan holds their own ▶ 1:30:06 Nathan calculates LP dividend vs capital gains tax spreadNathan demonstrates deep financial fluency by doing the live math on a $100k LP payout, explaining how dividend classification yields $60k at 37% tax while capital gains yields $80k at 20% tax.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Nathan as informed peer | Guest teaching | Guest disagreement | Nathan pushing back | Why |
|---|---|---|---|---|---|---|
| The Modern American Dream of Software Entrepreneurship | 5 | 3 | 2 | 3 | Nathan quotes Tyler's blog thesis on software entrepreneurship as the new American dream and challenges whether it is just hype or realistically achievable. Tyler clarifies how permissionless software business models offer accessible on-ramps. | |
| Overview and Metrics of Earnest Capital Fund 1 | 5 | 2 | 1 | 3 | Nathan establishes Earnest Capital's Fund 1 metrics before tracing Tyler's post-college career at New Energy Finance. Nathan playfully prods Tyler about his internship pay and Bloomberg acquisition timeline. | |
| SolarList and the Challenges of Traditional Venture Fundraising | 6 | 3 | 2 | 3 | Tyler explains how SolarList failed despite building an early mapping MVP because of long sales cycles and pitching 400 VCs during a clean-tech downturn. Nathan presses on the outreach tactics used to land so many meetings. | |
| Bootstrapping StoreMapper on a Flight to Buenos Aires | 6 | 2 | 1 | 4 | Tyler recounts building StoreMapper on a flight to Buenos Aires while burning cash in NYC. Nathan asks sharp questions about personal living burn rate and whether previous investors pushed back when Tyler wound down SolarList with a clean cap table. | |
| Scaling StoreMapper: Funnel Optimization and Low Churn | 7 | 3 | 2 | 4 | Nathan breaks down StoreMapper's growth metrics and highlights the Upwork freelance-to-micro-SaaS playbook. Nathan drills into onboarding mechanics and how to handle inactive paying subscribers, with Tyler emphasizing proactive automated onboarding. | |
| Selling StoreMapper to SureSwift Capital Without a Broker | 8 | 2 | 2 | 5 | Nathan catches a mathematical discrepancy between Tyler's stated $18k MRR and taking out $250k annual salary, prompting Tyler to reveal StoreMapper was doing much higher revenue at sale. Nathan also walks through negotiation leverage (BATNA) and micro-PE exit multiples. | |
| Developing the Shared Earnings Agreement (SEAL) | 8 | 5 | 3 | 7 | Tyler outlines the Shared Earnings Agreement (SEAL) mechanics and why convertible notes fail bootstrappers. Nathan pushes back hard on the prepayment restriction clause, questioning why Earnest would block a founder from buying out equity, prompting Tyler to explain anti-gaming protections against debt-financed pre-acquisition buyouts. | |
| Fund Return Economics: Balancing DPI, IRR, and Exits | 8 | 5 | 4 | 7 | Nathan and Tyler engage in a substantive debate over fund return metrics, contrasting VC paper markups with cash DPI and cash-based IRR. Tyler rejects Nathan's assertion that focusing on IRR makes Earnest play traditional VC vanity games. | |
| Portfolio Case Studies: Yac, 1 Second Everyday, and Syndicates | 8 | 4 | 2 | 5 | Nathan inspects Earnest's portfolio companies including Yac, 1 Second Everyday, and Endcrawl, pointing out deviations from the standard SEAL terms. Tyler explains when they use standard priced equity, syndicates, or co-investment terms alongside Indie.vc. | |
| LP Tax Implications and Equity Versus Debt Structuring | 9 | 4 | 3 | 6 | Nathan dissects the tax implications for LPs, calculating the exact difference between ordinary income/dividend taxation (37%) and capital gains (20%). Tyler explains navigating IRS tax risk when inventing new equity-spectrum financial instruments. | |
| Reinventing Fund Structures: Quarterly Subscriptions and Rule 506(c) | 8 | 4 | 3 | 6 | Tyler outlines his quarterly subscription fund structure under Rule 506(c). Nathan drills into the mechanics of sequential one-year funds and challenges what happens when LPs want to cross-commit or index across multiple fund vintages. | |
| Where to Connect and Final Interview Recap | 7 | 0 | 0 | 0 | Nathan gives an encyclopedic rapid-fire summary of Tyler's entire entrepreneurial journey from 2008 clean-tech to StoreMapper and Earnest Capital Fund 2, earning praise from Tyler. |
Statements from this episode (20)
Tringas: The modern American dream is running a remote, profitable software business
“The general idea of the American dream, right, the being successful, the white picket fence, all that sort of, like, just baseline level of success that many people aspire to, I think is really converging around the idea of running a, you know, profitable, rem…”
Tringas: New software deployment age favors niche products over mega-companies
“It's not the case that You know, a handful of software companies are going to scoop up all of the opportunity. What we're seeing and something that I've written about is, is this new deployment age of software.”
Tringas: Earnest Capital Fund 1 raised $3.1M and backed 16 companies
“February of last year, we launched earnest fund one you know, candidly is really like a proof of concept fund. So it was about 3.1 million dollars that we invested over 18 months. So it was essentially One company a month for 18 months, and we are just hitting…”
Tringas: SolarList pitched around 400 VCs to raise capital
“We were pitching probably 400 VCs, basically.”
Tringas: VC feedback is mostly optimized to make founders go away
“Don't ever listen to the feedback that VCs give you. It's mostly optimized for you to just leave them alone and refer other people to them. It's not real advice. Like mostly don't take it.”
Tringas: StoreMapper was the first store locator app on Shopify
“When we launched store locator app, it was the first one, you know, in there. So we just got a hundred percent of the sort of traffic from that.”
Tringas: 'Set it and forget it' software products have inherently lower churn
“These kinds of set it and forget it, you know, value creating products. I just think they inherently have much lower churn. If it's a product that it's a, you know, project management tool that everyone on the team has to use daily and weekly and monthly. Just…”
Tringas: Onboarding Is Paramount for Passive SaaS Products With High LTV
“That's why the relentless focus on sort of onboarding is so important with these kinds of products is that like, once you get someone there, you're good. You know, I mean, the lifetime value just because of the absurdly low churn is just astronomical because i…”
Tringas: Earnest Capital Fund 1 had about 40 LPs and no institutions
“Some of it was my capital for sure, but we, I think we had about 40 total LPs. So yeah, so, you know, it was almost all just entrepreneurs. So we didn't have any, you know, anything really approximating institutional investors in there with the section of, I m…”
Tringas: Traditional convertible notes and SAFEs fail profitable, non-fundraising startups
“Most of the early stage instruments, convertible notes and safes really are orientated around the idea that you will raise another round. And if you don't raise another round, They either do stuff that's, you know, not great, like accumulate interest indefinit…”
Tringas: Earnest Capital equity is typically reducible by up to two-thirds
“It's usually reducible by two thirds. So, so if we had written a check that entitled us to say nine percent of ConvertKit, you know, Nathan absolutely would have, you know, paid us down to about three percent and we would be very happy to still have that three…”
Tringas: Earnest Capital blocks arbitrary prepayments but guarantees formulaic buy-downs
“The founders are allowed to make that payment. They're not allowed to prepay in the sense of just dumping money at us. So what they can't do is just say, here's a check, 300 grand, boom, like we bought you down, right? And again, the reason for that is let's s…”
Tringas: Earnest Capital open-sourced its draft term sheet in October 2018
“October of 2018, I published a draft term sheet of this put it on hacker news, put it everywhere, left the comments open in the Google docs and just got like a flood of people red teaming this thing like crazy.”
Tringas: Earnest Capital's cash returns will primarily come from exits, not dividends
“What I will say is if you're talking about DPI, you're talking about actual cash dollars coming back to us. I think the majority of those cash dollars come from the exit events or at exit event, either the company sells, right? Or we at some point decide that …”
Tringas: Earnest Capital caps shared earnings payback at 3x to 4x
“It varies, but you could say it's like three to four XR money, and then if you pay that back, you never pay us another bit of profit share ever.”
Tringas: All Earnest Capital Mentors Must Invest as LPs in the Fund
“All of our mentors also have to be LPs in the fund, so they are actually, like, everybody is invested, literally, in the success of the founders on this mission”
Tringas: Earnest Capital SEALs have no covenants, repayment deadlines, or foreclosure rights
“We, for example, we don't ever, like, strive to have any kind of covenants or any kind of, you know, way that we could there's no deadline that you can miss for repayments, right? There's no way to default On us other than, you know, literally not paying, maki…”
Tringas: Shared earnings instruments will eventually qualify for capital gains treatment
“And so we do believe that, you know, over time this will continue to be categorized more and more as equity risk, which the tax code tends to reward with capital gains treatment.”