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Affirmology Funding Strategy Memo (v1)

Updated Jun 25, 2026 · Affirmology_FundingStrategy_Memo_v1.md

Affirmology Funding Strategy Memo (v1)

Internal working doc. Captures Jeff's evolving funding thinking from the 2026-06-25 brain dump and cross-references it against what is already on paper. This is a thinking document, not an investor-facing or Colin-facing packet. We prep this up first, then send Colin a clean version for his review and input when it is ready.

Owner: Jeff. Maintained by: Claude. Last updated: 2026-06-25.

No promises here are legal or tax advice. Anything we adopt on instruments, vesting, or notes gets papered by counsel before it goes live.

1. The delta: what is already documented vs. what Jeff is ideating now

The point of this section is to stop us from re-deciding things that are already decided, and to clearly flag what is genuinely new or shifting.

Bottom line on the delta: the only genuinely new items are (a) the ElevenLabs grant, (b) the convertible-note question, and (c) a smaller, possibly two-tranche Round 1. Everything else is a refinement of what the term sheet and use-of-funds docs already say.

2. The ElevenLabs grant (new lever, worth doing)

What it is: ElevenLabs runs a Startup Grants program. Current terms give startups under 25 employees 33 million characters of voice AI free (about 680 hours) for 12 months, plus access to founder events and startup support. You apply directly, no investor deck or VC letter required, and they respond in about a week.

Why Affirmology fits almost perfectly: their bar is a real product with a monetization strategy that you intend to take to market long-term, powered by AI voices. That is exactly us. Two eligibility notes: they exclude agencies and consulting firms (we are a product, fine), and they will not fund products built for under-18s (we are adult-targeted, fine).

Honest framing of the value: - It is credits, not cash. It does not replace the raise. It zeroes out the ElevenLabs voice-render line for a year, which is a real recurring cost and one investors ask about. - In the raise it becomes a "our burn is lower than it looks, a major vendor is effectively sponsoring our voice layer" point. That strengthens the ask. - The relationship is the second prize. Gazelle's future-self app being in the program is a warm-intro angle to ElevenLabs as a partner, which Jeff correctly sensed. Founder events and startup support are part of the package.

Caveat to plan around: when the grant period ends or you drop below 10,000 credits, the plan auto-converts to the Free plan unless you choose otherwise. So treat the 12 months as a runway on the voice line, not a permanent zero.

Next step: full application drafted in Affirmology_ElevenLabsGrant_Application_v1.md. Needs a business email (jeff@jeffparker.love is fine once the LLC and domain are clean) and a quick review before submitting.

3. The convertible-note question (researched, marked as a possibility)

Jeff asked specifically: is there a convertible-note situation that is NOT a SAFE, where an early investor can choose to treat their money as debt (repaid with a small return) or convert it into ownership? Here is the honest research.

First, a definition fix. A SAFE is not what Jeff is describing. A SAFE has no maturity, no interest, and no repayment right, so an investor cannot choose to "take it back as debt." What Jeff is describing is a convertible promissory note: real debt (principal plus interest, with a maturity date) that the holder can convert into ownership instead of being repaid. That instrument exists and is common in C-corps.

The catch for us: we are a Wyoming LLC, and convertible instruments behave badly in LLCs. - SAFEs map poorly to LLCs at all, because LLCs do not issue stock, they issue membership interests, so a standard SAFE has nothing clean to convert into. - Convertible notes inside an LLC carry specific tax traps that do not exist in a C-corp. When a note converts to LLC units, the tax code can create cancellation-of-debt (COD) income and basis-drop gains allocated to the existing members, meaning you (Jeff and Sol) could owe tax with no cash to pay it, simply because you raised money. Multiple startup law firms explicitly advise founders to avoid issuing convertible notes through an LLC. - The standard "correct" path for true convertible mechanics is to convert to a C-corp before raising, which collides with the entire Wyoming-LLC cash-cow distribution plan we have built the company around.

The clean instruments that DO work in an LLC, and that already give Jeff most of what he wants: 1. Direct membership units (what the term sheet already sells). Upside plus annual distributions from day one. 2. A straight promissory note (the optional loan already in the term sheet). Pure debt, small fixed return, defined payback, no conversion and no COD trap. 3. A profits interest. The holder shares in future profits and sale proceeds above a set threshold, rather than owning current equity. A cleaner LLC-native way to give upside to people who contribute.

DECISION (Jeff, 2026-06-25): GO on offering all three choices, equity / straight loan / convertible note, and Jeff is comfortable taking on the debt. Thesis: ads + the affiliate/creator program scale fast enough inside a year to repay comfortably; repaying instead of converting buys back (retains) the equity that would otherwise have been issued. Precision points to carry into the paperwork: (1) "$20k back on a $15k loan" is a STRAIGHT LOAN, not a convertible note; it never issues equity, which is exactly why it preserves ownership. (2) For a convertible note to let the COMPANY repay and keep its equity, the note must grant the company a prepayment/call right; investor-friendly notes often block prepayment so the holder keeps the upside, so this must be negotiated explicitly or the investor can force conversion. (3) $20k on $15k = ~33% annual return, well above the 4-6% in the existing term-sheet loan; generous to the investor, a real fixed obligation on Jeff regardless of growth, and possibly into state usury territory depending on where it is papered, so counsel sanity-checks the rate. (4) The LLC tax trap (COD/basis) fires only on the actual conversion-to-units event, so the straight-loan path is clean; only a real convert-to-equity case needs the ~$3-10K counsel work.

Recommendation context (now a menu, not a single pick): each investor chooses at the relationship level, equity, a straight loan, or a convertible note. The straight loan already lives in the term sheet; the convertible note is the new addition Jeff greenlit. Paper the convertible note with counsel and a company prepayment right before offering it.

Marked as a possibility, per Jeff: if a specific investor insists on a true convert-or-repay shape, it can be done, but it should be a deliberate one-off, papered by tax counsel (typical LLC convertible-instrument counsel review runs ~$3K to $10K), and it reverses the documented "no convertible notes" stance, so it is a decision, not a drift.

One more honest point for Jeff personally. He told me his credit is poor, Sol's is tapped, and there are no savings. Debt has to be repaid on a clock, from founder salary or operations, during the exact 12 to 18 month window where the launch burn is highest. If the company is slow, equity investors share that pain; note-holders still must be paid. So repayable debt is cheaper if we win fast and heavier if we are slow, and right now we are cash-fragile. The cash-cow equity story is actually better matched to that reality and protects Jeff from a repayment cliff. Lean equity, offer the small straight-loan option to the few who want it, keep the convertible idea in the back pocket.

4. Budget reality and Round 1 sizing

Jeff's live budget thinking from the brain dump, cross-referenced to the Money List and use-of-funds. This supports a six-figure Round 1 even on the conservative read.

Read: Jeff's own floor is ~$50-60K, and once gear, app-ops, and ad spend are in, $100K to $150K is well justified. His instinct to set Round 1 at $75K to $150K is reasonable. The documented round was $150K to $250K; the gap is mostly that he is now separating a leaner "survive and launch" Round 1 from a later, higher-valuation Round 2. That staging is sound and matches the existing Round 2 plan (raise more at $4-6M post after Faena traction).

Two-tranche idea, captured: Tranche 1 at the favorable $1.5M post (1% per $15K) to the warm circle now; Tranche 2 later at less favorable terms (higher valuation, or a defined step-up) so we can pull in more only if needed without giving away the same cheap price twice. This is consistent with the existing "Round 2 at higher valuation, lead gets pro-rata and ROFR" structure. We do not need to lock the exact split yet.

BUDGET UPDATE (Jeff, 2026-06-25), now built into tiered plans in Affirmology_RaiseTiers_UseOfFunds_v1.md: - Founder runway: $8K to $10K/mo COMBINED for Jeff + Sol, target 3 months (Aug-Oct), ideally some in July (closer to 4 months). - Tech subscriptions: at least $500/mo and rising, plus growing Anthropic API + Higgsfield + other credit burn as we scale and onboard customers. ElevenLabs grant offsets the voice slice if awarded. - Ad spend reframed DOWN: Jeff does not think we need $40K for ads. Redirect that money to (a) the Sept 11 launch event (his birthday), (b) a deposit + payment on a venue for the 11/11 gathering (Palapa or similar), and (c) funding the team for the Ultimate Wellness / Faena activation so we are not scraping or begging them. Ads get a modest real test instead of the headline line. - Assistant added as a near-term priority (high leverage, ~$1-2K/mo). - App-ops / monitoring and event-activation staff added as sequenced post-raise hires (see section 5). - PLACEHOLDER: Jeff flagged a "significant item" he could not recall in the moment. Held open in the tiers doc's open-numbers list until he names it. The tiered plans ($50K / $75K / $100K / $150K stretch) translate all of this into a cumulative, shareable use-of-funds, with equity-given shown at each tier ($50K = 3.3%, up to $150K = 10%).

5. Equity, vesting, and the debt-vs-equity call

Most of this is already structured; Jeff's brain dump refines it.

Sol, up to 25%. Already built as an earn-in: 20% now (5% vested immediate, 15% on a 4-year vest with a 3-month cliff) with a path to 25% via investor bring-in. Jeff's reasoning (lifelong partnership, synergy, she was his source of affirmation through the lows) supports giving her a clean, defined track to the full 25%. To decide: what specifically triggers the climb from 20% to 25%. Options to model: capital she helps bring in, brand/launch milestones, or simply a longer vest that lands her at 25%. Her stake is already protected from future-CEO dilution in the term sheet.

Colin, up to 5%. Already structured as 2-3% advisor vesting over 2 years plus a finder reward of 1% per $50K of qualified capital he brings, capped at 5% total. This maps exactly onto Jeff's instinct: a 2-3% advisor grant that vests so he keeps showing up, plus extra for investment brought in (Norm is the live one). Recommendation: keep him at the 2-3% advisor vest as the base, and let the Norm introduction earn him up toward 5% through the finder reward, rather than granting 5% up front before he has pulled the weight. Note the same finder structure is what we would offer Josh if he wants advisor equity on top of his check, so keep them consistent.

Future CEO (Jackie). Big, later, worth modeling separately, and now research-backed. Salary: she will need a step from $20K to $25K/mo to leave her current job and join; she has proven herself as COO at Aurea and the working relationship is strong, so that is the floor, not a stretch, and she is worth it once the company can pay it. Equity: market for a non-founder CEO brought in to actually run an early-stage company is ~5% to 10%, vesting over 4 years with a 1-year cliff. The median hired-CEO grant in the data is ~2.6%; early-stage outside CEOs land higher because they take more risk. Jeff's earlier guess of 10-25% is above market unless Jackie is effectively a co-founder bringing capital. KEY FOR JEFF'S GOAL of staying the dominant/majority shareholder (his vision, he founded it, and he wants firepower to fund his broader mission): paying market (5-10%) keeps him comfortably majority. A 25% CEO grant is the one version that would actually threaten his control, and he does not need to go there to land a great operator. Mechanic: per the clarified rule, the CEO grant is negotiable as part broad dilution (shared pro rata) and part from Jeff; the term sheet's pool-first-then-Jeff routing still applies to the team-pool portion. Not a Round 1 decision; model it before any offer.

Other contributors and staff (Jeff, 2026-06-25). Jeff may give small equity slivers to a few people who become significant contributors, on top of salary, and wants an assistant sooner rather than later (a high-leverage spend that gets Jeff out of low-value work; ~$1K to $2K/mo, prioritized by raise size). These small grants are exactly the kind that come out of Jeff's stake to protect Sol. Down the line, when affordable: an app-ops person to take over and monitor the app (research: a maintenance + monitoring retainer runs ~$300 to $700/mo basic, ~$500 to $2K/mo for something real early, scaling from there; cross-ref the fractional-CTO $6-15K/mo and fixed-scope $25-40K options in BuildVsHire), plus event/activation staff (Lauren, Glo, Randy and others) who increasingly run the in-person events at festivals and gatherings so Jeff and Sol do not have to be at all of them. These are post-raise hires, sequenced by what the round and revenue support.

Dilution check, so Jeff can hold this without anxiety: at $1.5M post, selling 16-17% to investors still leaves the founders comfortably in majority control. Sol's 25% and Colin's 5% come off the founder side of the cap table, not stacked on top of investor dilution. Jeff is not at risk of losing control in this round. The genuine long-term dilution question is the future-CEO grant, not the angel round.

Governance nuance (Jeff, 2026-06-25): "Sol aligned to me" means partnership, not a blank check. Jeff and Sol will both sit on the advisor board, and Sol will want her own lane of autonomy; she will not easily rubber-stamp every Jeff decision, though they have structurally agreed on the overall shape. Action: while it is friendly and agreed, the operating agreement should spell out (a) the decisions that are Jeff's alone to make and (b) the short list of Major Decisions the two of them decide together, so the autonomy lane and the joint sign-off do not collide later. This is governance design, separate from the ownership percentages.

Where new equity comes from (Jeff, 2026-06-25, clarified): NOT a blanket "everything comes out of Jeff." The rule by grant type: - Ordinary hires / team grants: from the 8% team pool, as the term sheet already says. - Discretionary grants Jeff initiates (e.g. a superstar friend who joins as an employee): out of Jeff's stake specifically, so Sol is not diluted by Jeff's generosity. This is the "comes out of mine" case. - Future CEO grant (Jackie, 10-25%): negotiable, likely PART broad dilution (shared pro rata across the cap table) and PART from Jeff, settled in that negotiation. Not all on Jeff. - Investors: not diluted by any of the above; these come off the founder/pool side.

Net: Sol is protected from Jeff's discretionary generosity; Jeff absorbs the friend-grants and a negotiated slice of the CEO grant; the broad pieces (the rest of the CEO grant, ordinary hires via the pool) are shared as normal. Still worth sizing the CEO grant deliberately, since the from-Jeff portion stacks on his stake.

The debt-vs-equity call. Jeff is torn between "borrow little, dilute little, borrow more later" and "take a bit more equity money now for cushion so we do not miss launch windows." My honest read, given the cash fragility: the cushion wins. Missing the Aug-Sep launch windows because Jeff is doing outside work to make rent is the expensive outcome, far more expensive than a few extra points of a company that is designed to throw off distributions for decades. A slightly larger equity raise now, with the founder runway line actually funded, buys the focus that hits the milestones. Debt is the thing to use sparingly, because it adds a repayment clock during the exact window we are most fragile.

6. Open questions still to settle (before this goes to Colin)

1. Round 1 number and shape: confirm the Round 1 target ($75K / $100K / $150K) and whether we formally run it as two tranches with a defined Tranche 2 step-up.
2. Sol's 20% to 25% trigger: define exactly what earns the last 5%.
3. Colin: confirm base advisor 2-3% vesting plus finder up to 5%, versus granting more up front.
4. Convertible note: park as a possibility, or kill it cleanly and commit to "equity, loan, or both, investor's choice"? (My lean: the latter.)
5. App-ops line: who/what takes over app-store pushes and what does it cost. Add to the budget.
6. Korea living number and the demo-kit list: two specific dollar figures still open in the Money List that firm up the Round 1 ask.
7. Future-CEO grant: model the dilution before any offer to Jackie. Not now, but on the radar.

7. What already exists, so we build on it rather than redo it

• Affirmology_TermSheet_v1.html / .pdf: the instrument, the $1.5M post ladder, founder allocation, the optional founder loan, distribution policy, connector/finder rewards.
• Affirmology_BuildVsHire_UseOfFunds_v1.md: the technology line and hire-vs-build logic.
• Affirmology_CashCowReturns_Note_v1.md: the distribution-yield model and honest caveats.
• Affirmology_MoneyList_v1.md: the living line-item budget and the $195K use-of-funds example.
• Affirmology_RoundContingency_v1.html: the Colin / Josh decision tree across paths.
• Affirmology_ExecSummary_v3.html / .pdf: the full use-of-funds slide and round framing.
• Affirmology_ColinAdvisor_v1.html, Affirmology_ColinPrep_v2.html, Affirmology_CoFounderAgreement_v1.html: existing advisor and co-founder language.

These are the bones of the eventual big investor PDF. This memo is the connective tissue that updates the ask on top of them.

Sources (external research, 2026-06-25)

ElevenLabs grant: - ElevenLabs Startup Grants: https://elevenlabs.io/startup-grants - ElevenLabs Grants application: https://elevenlabs.io/grants-application - ElevenLabs blog, grants extended to 12 months / 680+ hours: https://elevenlabs.io/blog/elevenlabs-startup-grants-just-got-bigger-now-12-months-and-over-680-hours-of-conversational-ai-audio

Convertible notes vs. SAFEs for an LLC: - Braverman Law Firm, SAFE vs Convertible Note for LLCs: https://bravermanlawfirm.com/company-formation/llc-safe-vs-note/ - MintzEdge, LLCs and Convertible Debt: https://www.mintzedge.com/blog/llcs-and-convertible-debt-too-good-to-be-true - Lazo, SAFE agreements for LLCs: https://www.lazo.us/blog/using-safe-agreements-with-llcs-what-founders-need-to-know-about-this-funding-tool - LatamList, pitfalls of issuing convertible instruments through an LLC: https://latamlist.com/the-pitfalls-of-issuing-convertible-instruments-through-an-llc/