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…
Board of Directors
A board of directors, often simply referred to as “the board,” has the highest level of legal authority in the operation of a company. It is responsible for making important corporate decisions, such as budgets, option plans and declaring dividends. The board also decides on the exit paths for a startup as it approves the…
Expenses
Under expenses in the Series Seed term sheet, the startup agrees to reimburse the investors (purchasers) a flat fee of $10K for counsel expenses. The founders are essentially agreeing to reimburse all the investors of the seed round for a one-off legal fee. The fee is set as a fixed charge of $10K. Using the…
Future Rights
Future Rights in the Series Seed term sheet give the investors the same rights if the new investors in a subsequent round of financing get better rights. This means that if the new investors in the subsequent round of financing successfully negotiate for better protection, the Series Seed investors will receive the same level of…
Key Holder Matters
There are three parts under Key Holder Matters in the Series Seed term sheet: (i) a four-year vesting, (ii) a full acceleration upon “Double Trigger” and (iii) all relevant IP assignments before closing. Vesting Investors want to ensure that founders are incentivized to stay at the company and work hard to increase the value of…
Conclusion
The Series Seed documents are designed to streamline the process of fundraising for an early-stage company. Hopefully, this guide helps entrepreneurs get a basic understanding of the terms. Though the guide is designed to educate, it is not legal advice and does not replace the need for counsel. Skilled counsel will help you understand which…
