Back in March, Andreessen Horowitz and Fenwick & West, LLP published a series of documents that would help structure early stage investments in startups. The documents have since been used in many deals already according to the site, SeriesSeed. While there aren’t many issues to negotiate in simple equity financing at that stage, there’s been some debate in the venture capital and angel community on whether startups should use series seed documents or capped convertible debt.
Fred Wilson, Paul Graham and Seth Levine all agree that as an entrepreneur one would prefer uncapped convertible debt to equity, but investors typically won’t go for it. Andreessen and Horowitz propose that while Series Seed documents offer equity stakes for investors, they offer several advantages:
- Costs – should be roughly the same (if not cheaper) than using industry standard debt documents.
- Speed – faster than debt documents since there’s less negotiation required
- Transparency – no hidden clauses and the documents provide more definition around rights, and stability for a subsequent round
- Flexibility – enable multiple board structures
And finally, to quote the authors:
In sum, Series Seed creates a level playing field between capped debt and equity documents in terms of speed and cost. When one studies the (admittedly highly technical) benefits of Series Seed vs. price debt, Series Seed is a better solution.
Here are links to the documents for your reference. Make sure you read the disclaimer before using these.
Certificate of incorporation Series Seed COI (v 2.0)
Investors Rights Agreement Series Seed IRA (v 2.0)
Seed Term Sheet Series Seed Term Sheet (v 2.0)
Preferred Stock Purchase Agreement Series Seed Form SPA