During the early stages of building your startup, every investor partner with and every contract you sign can have an impact on your ultimate success. You need a top financing lawyer to help you review, vet and negotiate these contracts. Priori can connect you with an experienced financing lawyer who can walk you through the steps of raising your first venture capital round.
Purpose of Series A Financing
Series A round financing is intended to give your startup the capital it needs to develop a functional business model. The hope is that Series A financing will allow you to become profitable. Often A round capital is used to scale distribution and market penetration of your product.
Venture Capital Rounds and Series A Financing
Series A financing is often the first real significant infusion of capital from outside investors that a company will get. For most companies, one infusion of capital is not enough. After Series A offerings, many startups go on to raise money during B rounds, C rounds and so on. These venture capital rounds generally continue until a company is acquired or goes public. Others fail or simply outgrow the need for venture capital.
All venture capital rounds are important, but A rounds in particular set the tone for future rounds. It is important that you only work with investors you trust and respect. You also must make sure all disclosures and legal paperwork are accurate and vetted by an experienced corporate attorney. Mistakes during these early rounds may follow your startup causing exponentially bigger problems as you scale.
Important Series A Documents and Provisions
Series A financing contracts are generally quite complex and must include a large number of provisions. The following are some documents and provisions you should be familiar with.
- Term Sheets. Term sheets are the basic documents that outline the terms under which your investors are agreeing to invest. They generally include considerations of funding, corporate governance, and liquidation.
- Investor Rights Agreement. This details the enumerated rights of shareholders, especially if an investor will be a minority investor. Usually, these will include details such as reporting and financial disclosure requirements, observer rights, and when the investor has the right to inspect or indicate concerns.
- Stock Purchase Agreement. This is the actual contract that details the cost of the shares, as well as all terms and conditions related to the purchase and sale of the shares.
- Right of First Refusal. Often, investors will request provisions detailing the right of first refusal, which allows them to be offered to purchase new shares before any other public offering.
- Amended and Restated Certificate of Incorporation. This is the document that formally incorporates the changes required by investors into the company’s formal documents of incorporation, superseding past revisions.
- Voting Agreement. This is the document that specifies the terms under which two or more shareholders pool their voting shares.
Priori Pricing
Depending on your needs, the cost of raising your Series A round can vary. Priori lawyers offer transparent flat fee packages for Series A financing ranging from $4,000 to $10,000. In order to get a better sense of cost for your particular situation, put in a request to schedule a complimentary consultation and free price quote from one of our lawyers.
FAQ
What is the difference between Series A financing and Series B financing?
While both A rounds and B rounds are early venture capital financing rounds intended to scale your business into a profitable company, companies in B rounds are generally more established. During a Series A financing round, you may still not have your business model figured out. By a B round, you should be focusing on increasing that success by scaling your business model, expanding your user base, or otherwise increasing your company’s reach in the niche you have already established. In some cases, there may be overlap between the two rounds depending on how established your company was during seed rounds and A rounds.
Does it matter which round my financing round is labeled?
Ultimately, the label on the round is less important than the money you are raising for your company. All venture capital rounds have the ultimate goal of scaling a business in order to make it more successful. There are some who argue the benefits of A rounds versus B rounds and vice versa for image, legal, or financial reasons depending on the unique circumstances of a company. If you want to learn more about how the type of round may affect your company, it can help to discuss the specifics with a corporate lawyer familiar with the needs of startups.