Series Seed Preferred financing: Explaining this funding round that appeals to angels and early-stage VCs
It comes after initial seed funding and before more substantial rounds like Series A. Investors in a Series Seed Preferred financing are often angel investors, early stage venture capital firms, or specialized seed-stage funds. They provide capital to the company in exchange for preferred stock, which offers several advantages over common stock:
Series Seed Preferred stock typically includes a liquidation preference, giving holders priority in asset claims if the company is sold or liquidated.
Holders also benefit from conversion rights, allowing them to convert preferred shares into common stock under specific conditions, potentially benefiting from future company growth.
Series Seed Preferred shareholders usually have voting rights on important company decisions, influencing company management.
Some Series Seed Preferred stock may include preemptive rights, providing investors an opportunity to invest in future rounds so as to maintain their percentage of ownership if the company issues additional shares, and anti-dilution provisions, protecting investors if those additional shares are issued at a lower valuation than the Series Seed Preferred.
View the full Fundraising Guide
Several key documents are involved in outlining the terms, rights, and obligations of the early stage company and the investors in a Series Seed Preferred financing.
The Certificate of Incorporation outlines the structure and governance of the company, including provisions for preferred stock issued.
The Stock Purchase Agreement formalizes specific investment terms, such as the share price, and contains various representations and warranties about the company.
The Investors Rights Agreement specifies investor rights, including information rights, registration rights, and sometimes governance rights.
A Voting Agreement details the voting rights and processes for Series Seed Preferred shareholders often including the right of the Series Seed Preferred Investors to appoint a Board Member.
Additionally, a Right of First Refusal (ROFR) and Co-Sale Agreement are typically included to grant shareholders rights to purchase shares sold by the founders, or to tag-along in those sales under the same terms.
Overall, Series Seed Preferred financing provides investors advantageous terms and downside protection while offering companies valuable access to capital for business expansion. If considering this type of financing round, it is critical to consult competent counsel to ensure all legal considerations are properly addressed.
Regulatory compliance
Whenever you raise a round of financing, whether a SAFE, Convertible Note or Priced Preferred (or Common) Stock round of financing, one of two things must happen from a regulatory perspective:
You file a full 'Registration Statement' with the Securities and Exchange Commission. Similar to an IPO filing, it's very expensive and time consuming.
You qualify for an exemption to avoid filing a Registration Statement. For example, you are exempt and file under 506(b) or 506(c) of Regulation D ('Reg D') of the Securities Act.
If you do not file a Registration Statement or qualify for an exemption such as 506(b) or (c) under Reg D, and are not otherwise exempt under Section 4(a)(2), YOU HAVE VIOLATED THE SECURITIES LAWS.
Federal securities regulations (dealing with the SEC)
The Securities and Exchange Commission (SEC) is a federal agency tasked with administering the Securities Act of 1933, as amended, along with others. The Securities Act of 1933, as amended, is also known as the Securities Act or '33 Act.
Even when your offering of securities is exempt, you often will need to file a form of some kind with the SEC to perfect the exemption. Careful attention must be given to selecting the correct form and properly completing it.
All forms are filed with 'EDGAR', the SEC's Electronic Data Gathering, Analysis, and Retrieval System.
Blue Sky laws (dealing with states)
State-level securities statutes and regulations are commonly referred to as 'Blue Sky laws.' The Blue Sky laws of each state are different, and generally require some action be taken at the state level to perfect your exemption.
Blue Sky issues relating to securities offerings arise primarily in three areas:
1. Securities exemptions and filing requirements.
2. Antifraud liability that may arise from a securities offering.
3. Licensing and registration requirements for securities industry personnel participating in a securities offering.
It is recommended to seek legal counsel on regulatory compliance whenever you raise funding.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Technical.ly
14 hours ago
- Technical.ly
Series Seed Preferred financing: Explaining this funding round that appeals to angels and early-stage VCs
What is Series Seed Preferred financing, and when and why would you use it? This is a funding round typically undertaken by early stage companies. It comes after initial seed funding and before more substantial rounds like Series A. Investors in a Series Seed Preferred financing are often angel investors, early stage venture capital firms, or specialized seed-stage funds. They provide capital to the company in exchange for preferred stock, which offers several advantages over common stock: Series Seed Preferred stock typically includes a liquidation preference, giving holders priority in asset claims if the company is sold or liquidated. Holders also benefit from conversion rights, allowing them to convert preferred shares into common stock under specific conditions, potentially benefiting from future company growth. Series Seed Preferred shareholders usually have voting rights on important company decisions, influencing company management. Some Series Seed Preferred stock may include preemptive rights, providing investors an opportunity to invest in future rounds so as to maintain their percentage of ownership if the company issues additional shares, and anti-dilution provisions, protecting investors if those additional shares are issued at a lower valuation than the Series Seed Preferred. View the full Fundraising Guide Several key documents are involved in outlining the terms, rights, and obligations of the early stage company and the investors in a Series Seed Preferred financing. The Certificate of Incorporation outlines the structure and governance of the company, including provisions for preferred stock issued. The Stock Purchase Agreement formalizes specific investment terms, such as the share price, and contains various representations and warranties about the company. The Investors Rights Agreement specifies investor rights, including information rights, registration rights, and sometimes governance rights. A Voting Agreement details the voting rights and processes for Series Seed Preferred shareholders often including the right of the Series Seed Preferred Investors to appoint a Board Member. Additionally, a Right of First Refusal (ROFR) and Co-Sale Agreement are typically included to grant shareholders rights to purchase shares sold by the founders, or to tag-along in those sales under the same terms. Overall, Series Seed Preferred financing provides investors advantageous terms and downside protection while offering companies valuable access to capital for business expansion. If considering this type of financing round, it is critical to consult competent counsel to ensure all legal considerations are properly addressed. Regulatory compliance Whenever you raise a round of financing, whether a SAFE, Convertible Note or Priced Preferred (or Common) Stock round of financing, one of two things must happen from a regulatory perspective: You file a full 'Registration Statement' with the Securities and Exchange Commission. Similar to an IPO filing, it's very expensive and time consuming. You qualify for an exemption to avoid filing a Registration Statement. For example, you are exempt and file under 506(b) or 506(c) of Regulation D ('Reg D') of the Securities Act. If you do not file a Registration Statement or qualify for an exemption such as 506(b) or (c) under Reg D, and are not otherwise exempt under Section 4(a)(2), YOU HAVE VIOLATED THE SECURITIES LAWS. Federal securities regulations (dealing with the SEC) The Securities and Exchange Commission (SEC) is a federal agency tasked with administering the Securities Act of 1933, as amended, along with others. The Securities Act of 1933, as amended, is also known as the Securities Act or '33 Act. Even when your offering of securities is exempt, you often will need to file a form of some kind with the SEC to perfect the exemption. Careful attention must be given to selecting the correct form and properly completing it. All forms are filed with 'EDGAR', the SEC's Electronic Data Gathering, Analysis, and Retrieval System. Blue Sky laws (dealing with states) State-level securities statutes and regulations are commonly referred to as 'Blue Sky laws.' The Blue Sky laws of each state are different, and generally require some action be taken at the state level to perfect your exemption. Blue Sky issues relating to securities offerings arise primarily in three areas: 1. Securities exemptions and filing requirements. 2. Antifraud liability that may arise from a securities offering. 3. Licensing and registration requirements for securities industry personnel participating in a securities offering. It is recommended to seek legal counsel on regulatory compliance whenever you raise funding.
Technical.ly
26-06-2025
- Technical.ly
A pitch competition returns after more than a decade with a $1M prize
A venture firm and a local economic development group are teaming up to host a weeklong summit for founders and investors this fall in Northern Virginia. Fortify Ventures, which invests in early-stage startups, is renting out a Leesburg resort with the Loudoun County Department of Economic Development to put on keynotes, panels, networking events and a pitch competition with a $1 million prize. This isn't the first iteration of the event, known as Distilled Intelligence. Fortify Ventures held two conferences like this one, plus two daylong events, during the deployment of its first fund between 2011 and 2014. Fortify Ventures launched its second fund at the end of 2024, which inspired the resurgence of the event, per Jonathon Perrelli, the firm's managing partner. '[This] event energized startups and investors,' Perrelli wrote to in a statement, 'and DI was where we found our initial portfolio companies.' The first Distilled Intelligence event in 2011 granted $25,000 to 55 startups. In 2012, startups competed for $100,000. Perrelli said that Loudoun County Economic Development was that inaugural event's initial sponsor. The government agency is committing $200,000 to put on the event, he said. The Lansdowne Resort will get bought out between Oct. 13 and 16. Distilled Intelligence as a whole will cost several hundred thousand dollars to put on, although Perrelli declined to give specific numbers. 'Loudoun County is honored to co-host DI 3.0, an event perfectly aligned with our mission of driving innovation and economic growth,' said Buddy Rizer, the executive director of Loudoun County Economic Development, in a press release. 'Our region continues to attract dynamic entrepreneurs and influential investors, and DI 3.0 exemplifies the spirit of innovation and strategic growth Loudoun County stands for.' Seed-stage and Series A startups are encouraged to apply. Founders of the 100 firms selected to pitch will have a complimentary stay, while tickets for investors will be $799, with additional costs for the resort stay and golf. Tickets for the media cost $99 — a rarity, press passes for events typically do not cost money. The deadline to apply for the competition is Aug. 15. The winning company will nab the $1 million in the form of a SAFE note, which gives the investor the right to purchase equity in the company at a later date. It's a way for startups to get funding without setting an immediate valuation. Perrelli is looking to feature companies from several industries, including cybersecurity, defense, energy and fintech. It's open to startups across the US, but he noted he expects 'significant representation' of startups in the DMV. He recommends that companies applying show the strengths of their team, outline the size and growth potential of their market, and give details about traction.
Technical.ly
18-06-2025
- Technical.ly
The ABC's of equity crowdfunding: What founders should know
When an individual or entity invests in a startup, they typically do so in return for an ownership stake, otherwise known as equity. In 2012, President Obama signed the Jumpstart Our Business Startups Act (JOBS Act). Title III — Regulation Crowdfunding (or Reg CF) — allowed smaller companies to crowdfund investments online from many smaller investors. Reg CF allowed everyone into the world of private-company investment, including companies not registered or trading shares on national exchanges. Previously, the Securities and Exchange Commission (SEC) allowed only 'accredited investors,' aka people who meet certain wealth or income thresholds, to invest in private companies. The SEC finalized the Reg CF rules in May 2016, and in less than a decade, equity crowdfunding grew from curiosity to a major force in equalizing access to startup capital. Now early or mid-stage companies seeking investment can use the power of the internet and their existing networks to raise capital and, just as importantly, awareness. Other benefits unique to this model include the ability to: Broaden your investor base Turn your customers into marketers Incentivize your investors Prove value to institutional investors View the full Fundraising Guide Equity crowdfunding equalizes access to startup capital So how does it work? Companies (issuers) can raise up to $1.07M over a 12-month period by selling different types of securities that represent ownership, future ownership or debt obligations. Issuers set minimum and maximum ranges for the overall raise and individual investment minimums (SEC regulations limit maximum individual investment through an income/net-worth formula). Issuers must file CPA-reviewed financial statements and a legal document (Form C) with the SEC, which contains certain disclosures about the company. They also must file at least one year-end report. Issuers sell their securities over a portal approved by FINRA (Financial Industry Regulatory Authority). There are currently around 55 portals. The biggest ones have lists that contain hundreds of thousands of potential investors, along with media and industry insiders. Securities sold pursuant to Reg CF are restricted, meaning investors must generally hold them for one year before selling them, though there are exceptions. Regulatory compliance Whenever you raise a round of financing, whether a SAFE, Convertible Note or Priced Preferred (or Common) Stock round of financing, one of two things must happen from a regulatory perspective: You file a full 'Registration Statement' with the Securities and Exchange Commission. Similar to an IPO filing, it's very expensive and time consuming. You qualify for an exemption to avoid filing a Registration Statement. For example, you are exempt and file under 506(b) or 506(c) of Regulation D ('Reg D') of the Securities Act. If you do not file a Registration Statement or qualify for an exemption such as 506(b) or (c) under Reg D, and are not otherwise exempt under Section 4(a)(2), YOU HAVE VIOLATED THE SECURITIES LAWS. Federal securities regulations (dealing with the SEC) The Securities and Exchange Commission (SEC) is a federal agency tasked with administering the Securities Act of 1933, as amended, along with others. The Securities Act of 1933, as amended, is also known as the Securities Act or '33 Act. Even when your offering of securities is exempt, you often will need to file a form of some kind with the SEC to perfect the exemption. Careful attention must be given to selecting the correct form and properly completing it. All forms are filed with 'EDGAR', the SEC's Electronic Data Gathering, Analysis, and Retrieval System. Blue Sky laws (dealing with states) State-level securities statutes and regulations are commonly referred to as 'Blue Sky laws.' The Blue Sky laws of each state are different, and generally require some action be taken at the state level to perfect your exemption. Blue Sky issues relating to securities offerings arise primarily in three areas: 1. Securities exemptions and filing requirements. 2. Antifraud liability that may arise from a securities offering. 3. Licensing and registration requirements for securities industry personnel participating in a securities offering. It is recommended to seek legal counsel on regulatory compliance whenever you raise funding.
