Recs.
Updated
Equity rounds result in an investor being issued stock in exchange for money at a given valuation. In a nutshell, the investors will agree to a single termsheet that dictates the economics (valuation etc) and control (voting etc) of the deal.
Specs
Pros
Pro Simplicity
From SeriesSeed.com:
The Series Seed Documents are only 30 pages in the aggregate so that an entrepreneur can read and understand them without devoting an inordinate amount of time and energy.
The best part is that the documents have been designed to be completely "fill in the blank" to further reduce complexity and time spent in negotiation.
Pro Transparency
The series seed documents are standardized and publicly available, so there are no hidden terms to bite either the investors or the founders.
Equity deals also increase transparency, in that they are mature and well understood. In an equity deal, Founders know exactly what price they are getting instead of potentially the lower of the two different prices with a convertible note.
Recently there has been some uncovering of the hidden downsides of convertible notes, which highlighted the problem of using documents that are not fully understood. The series seed documents are essentially a simplified version of the same equity deals that have been done for decades.
Pro When you set the price, both sides know what deal they got.
Contrary to the trend of convertible notes with variable pricing, there is actually an advantage to a single price for the deal. From Fred Wilson's blog:
"It's locked in [the price] and they are in business together and aligned. The entrepreneur can't get screwed later when the price drops on them. And the investors can't get screwed later when the price jumps on them. This is a big deal. I don't understand why folks don't understand it."
If the company is unsuccessful or unable to obtain more liquidity, the founders will not have to worry about financial debt payments