Historically, a company needed to raise at least a few million dollars to create a new product and introduce it to the market. Every year, more tools and services are released to the public, which have dramatically lowered the cost of launching a tech startup. However, the standard set of venture capital legal documents remained complex and expensive. Historically, the typical venture capital investment package consists of five documents: two certificates, a legal opinion and two consents, and was roughly 100 pages long (excluding signature pages). However, that’s overkill to bring in a relatively small amount of money for a relatively early-stage company because many of the rights, obligations and preferences do not become important until the company is much more mature.
Ted Wang, a partner at Fenwick & West, authored and curated the Series Seed Documents in order to create a shorter, simpler version to the full set of documents used in Series A equity financing. While Series Seed documents closely mirror the Series A equity financing documents, they push the expense of negotiating more technical provisions, such as registration rights, that are irrelevant at an early stage to a later date. The idea behind the Series Seed docs is to have a standardized set of documents that will streamline the negotiation process (thus lowering legal fees). It’s designed as a starting point for negotiation, so most deals have some variation.
On SeriesSeed.com, only three essential documents are required to close on Series Seed equity financing. They are (i) term sheet, (ii) stock investment agreement and (iii) certificate of incorporation.
- Term Sheet—The term sheet is a high-level summary of the deal terms that are expected to be negotiated. It frames the universe of terms to be negotiated. Sometimes the entrepreneur leads with their own term sheet. However, it is more common for the lead investor of the round to issue the term sheet.
- Stock Investment Agreement—The Stock Investment Agreement is the central document in the seed round. It is the agreement that lays out the terms of the sale and issuance of Series Seed preferred stock. Because of that, it’s the longest document in the Series Seed documents.
- Certificate of Incorporation—A certificate of incorporation is the document a company files with the state, which affirms a company’s existence as a legal entity under the law of a specified state. Most entrepreneurs will have already filed their certificate of incorporation prior to raising a seed round. But in order to authorize Series Seed preferred shares and confer the rights to those shareholders, the certificate of incorporation will need to be amended and re-filed with the state. Because Delaware is the preferred jurisdiction for most professional investors, the sample certificate of incorporation under the Series Seed docs is under the State of Delaware.
Read our comprehensive guide on SEED funding here.