Why deep tech founders who resist structure don’t protect themselves, they just delay the reckoning
Note: This piece was prompted by a real engagement. All details , such as geography, technology sector, deal terms, and financial figures, are illustrative. The structural pattern, however, is real and recurring.
I was recently working with a founder who had elite scientific credentials, based in Europe, and in active conversations with European infrastructure companies. He had a term sheet on the table that included a 500K convertible bridge at 8% per annum, a set of equity conversion terms, and a royalty arrangement recovering to $10 million over time (Technical terms are defined in the glossary at the end of this post).
This founder grappled with the agreement, line by line, looking over terms. He did it with the scientific rigor you would expect. But he had no cap table, and no SAFE or equity instrument (even in theory) for investors to consider. The corporate structure was still unclear. And his advisor hasn’t been paid.
This is not a story about a bad founder. It’s a story about a pattern which often causes start-up failures or unnecessary initial problems.
The cost of deferring structure
PhD founders are trained to distrust anything that isn’t evidence-based. This is often the case with legal and financial structure which feels like “overhead” to them and is considered too theoretical and imposed by lawyers and advisors before anything real happens. I can understand this instinct. Founders would rather just stick to the science, which is what they know well, and let everything else flow from there.
But that is a trap that can impose severe costs in time and effort, and burn through potential investor contacts.
The typical “anti-structure” position frustrates me, particularly, because it assumes that structure is something you add later, once the real work is done. Would you add structure later to your scientific experiment, or in mapping out a tech roadmap?
In practice, the absence of structure creates asymmetry, and asymmetry always favors the party with more experience, more lawyers, and less urgency.
I can think of a few detailed examples:
Every inbound partner negotiates harder. When a strategic partner knows you haven’t closed capital, haven’t set a valuation, and have no existing investors to protect, they price that in. The term sheet gets more aggressive and, in this case, the royalty recovery ceiling climbs. The residual equity clause stays in even on full repayment. Why wouldn’t it?
Every investor runs diligence on a cap table that doesn’t exist. Sophisticated investors don’t just evaluate the technology or scientific innovation, they evaluate the infrastructure around it. A missing cap table isn’t a minor administrative gap. It’s a signal about how the company is run, or not run. Investors will fill the void with terms.
Every advisor and partner relationship is only as durable as the founder’s willingness to honor it. Agreements without operational commitment behind them are just documents. The unpaid invoice is never just about the money. It’s information.
Royalty arrangements, convertible notes, and equity promises made informally can become disputes later. The founder who resists structure today will be dealing with the consequences of that resistance at the worst possible moment: when real capital is at the table and structure will determine a yes or no answer. Running on promises without doing the work early raises risk.
The royalty illustration
For an example, let’s look at the terms I mentioned at the beginning of this post.
An infrastructure partner is offering $500K at 8% per annum, converting to 8% equity. That is straightforward. But the real economics are in the royalty: $3 per MWh on aligned deployments, recovering until approximately $10 million has been returned, which covers the initial investment, accrued interest, technical support, and “go-to-market assistance.”
The founder focused on the conversion mechanics. What he didn’t model was the royalty tail. At 15MW of aligned deployment operating at 40% utilization, that’s roughly 52,560 MWh per year. At $3/MWh, the royalty generates approximately $157,000 per year toward the $10 million cap. The royalty runs for 63 years at that deployment scale.
Even at significantly larger deployment volumes, this is a long-duration revenue drag, and two of the recovery components are undefined. “Technical support” and “go-to-market assistance” have no caps and no specific deliverable definitions. The partner controls how long this runs.
None of this is visible without a financial model. As I explained to my client, you cannot build a financial model without a revenue structure, and you can’t define a revenue structure without deciding what the company looks like. All of that requires the structural work the founder had been deferring.
In this case, the royalty wasn’t the problem. The absence of a framework to evaluate it was the real problem, and the real cost.
How to Reframe the Structure Problem
Structure isn’t defensive positioning or an over-complication. It isn’t a sign of mistrust between collaborators.
Structure is the thing that makes your vision executable by anyone other than you.
Investors in your venture need to write checks. Partners need it to know what they’re aligning with, and who. Your own team needs it to understand what they’re building toward in terms of a business, and your advisors need it to do their jobs, which is to protect your interests in negotiations with other people that have more experience than you do.
Founders who move fastest are rarely the ones with the least structure. They’re the ones who built the right structure early, which is simple, clean, and intentional. Then they operated freely inside it.
One Action
Do one thing before your next partner or investor conversation:
Build your cap table. Open a spreadsheet, list every person who has an ownership claim on your company, such as founders, advisors, anyone with an informal equity promise, and assign percentages. It does not need to be a legal document yet; but it needs to exist.
If you discover that equity has been promised informally to multiple parties without documentation, that is the answer to why your next negotiation will be harder than it should be. Fix it before you sit down across from someone whose lawyer has already modeled your dilution for them. Everything else in the process, such as the SAFE, the investor conversations, and partner term sheets, becomes cleaner the moment you know what you own.
There is, of course, a version of “keeping it clean” that is genuinely strategic as it avoids premature complexity, staying flexible for the right partner, and not over-lawyering early relationships. That’s worth preserving, and it’s often an instinct that founders have and convey to me.
But there is another version that is simply avoidance. The “intentionally clean structure” that never gets built, or the cap table that’s always being shaped “collaboratively.” The SAFE that launches after the next conversation, which leads to another conversation.
That version doesn’t protect the founder. It just delays the reckoning.
Glossary
- Convertible bridge: a short-term loan that converts to equity at a future funding round rather than being repaid in cash.
- Cap table: a record of every person or entity with an ownership stake in the company, and what percentage they hold.
- SAFE: Simple Agreement for Future Equity; an early-stage investment instrument that converts to equity at a future funding round, typically at a discount or with a valuation cap.
- Valuation cap: the maximum company valuation at which a SAFE or convertible note converts to equity; this protects early investors from being diluted if the company’s valuation rises significantly before conversion.
- Residual equity clause: a provision where an investor or partner retains an ownership stake in the company even after the founder has fully repaid the investment and all associated costs.
- Royalty tail: the extended period during which a royalty payment obligation continues, often longer than founders model when evaluating the initial terms.
- Diligence: the investigative process investors and partners conduct before committing capital, covering technology, team, financials, legal structure, and cap table.