Securities to Issue
Unlike the pre-seed round where convertible notes or Simple Agreements for Future Equity (“SAFE”) are commonly used, Series Seed investors are purchasing preferred stock of the company and thereby becoming partial owners of the company. They are also entitled to key shareholder rights and additional shareholder rights specified in the Series Seed preferred stock documents….
Aggregate Proceeds
The aggregate proceeds in the Series Seed docs is simply the total amount of money the company is setting out to raise in the round of financing. Entrepreneurs should consider a number of factors when establishing the aggregate proceeds. First, consider the amount required for the company to reach the next round of funding. The…
Purchasers
Unfortunately, the Securities and Exchange Commission (SEC) does not allow a startup to raise capital from just anyone. Startups should only fundraise from Accredited Investors. First, it’s important to understand some basic concepts. The general SEC rule is that if you are raising money, you need to register with the SEC—an incredibly expensive process. But…
Price Per Share
How much is your company worth? It’s often the most important, most contentious (and often the most subjective) question in any negotiation between entrepreneurs and investors. At the seed stage, any attempt at valuation is highly speculative. Most companies have little or no revenue, a very early version of their product, only a tiny user…
Liquidation Preference
What is a liquidation preference? A liquidation preference dictates the order in which investors are paid out upon a liquidity event. A liquidity event usually means the sale of a company or the majority of a company’s assets. In short, the liquidation preference determines how much the preferred shareholders will be paid from the proceeds…
Conversion
A conversion is the right of preferred shareholders to convert their shares into common stock at any time. The most common conversion rate is 1:1, which means that one share of preferred stock will convert into one share of common stock. Once a preferred share is converted into a common share, there is no provision…
Voting Rights
Voting rights is a governance term, which means it relates to who has decision-making power in the startup. On general matters, Series Seed investors vote on an “as-converted basis.” For the purposes of voting on general matters, the preferred shares are treated as if they are converted into common shares for vote tallying purposes, but…
Documentation
Whereas, the traditional venture capital investment package is five lengthy documents, the Series Seed approach is condensed into three essential documents. They are the (i) term sheet, (ii) stock investment agreement, and (iii) certificate of incorporation. The three documents will be identical to the documentations published on the Series Seed website. Where there are modifications…
Financial Information
Major investors want to understand what’s happening at the startup they invested in, and rightly so. This term ensures that the founders are committed to provide certain investors (i.e., major purchasers) standard information, inspection rights and management rights letter (collectively referred to as information rights). Major purchasers can be defined as investors who invested above…
Participation Rights
A participation right is the right of existing investors to participate in future rounds of financing. Sometimes referred to as a pro rata right, this participation right may show up in the seed round and is usually limited to major purchasers. The participation right gives the current set of investors the right to purchase their…
