According to Wil Schroter, Founder and CEO at Startups.com, ‘there’s not a lot of fun in funding’. And for a good reason. As an entrepreneur looking for start-up financing options, you need several strategies to survive and thrive. Perhaps you began your bootstrapped business in the early days and moved to crowdfunding or conventional loans. You are now seeking convertible or equity funding to move your company to the next level. As a start-up, you may know about the many series of fundraising rounds, starting from family and friends, seed funding or convertible debt, Series A and so on.
Understanding Series A financing
Series A financing or funding is one of the primary stages in the process of raising capital for a start-up. Essentially, it is the second stage of start-up financing and the first series of venture capital funding. Regarded as equity-based funding, Series A financing is the stage where your company secures the required finances from an investor by selling company shares. In some cases, Series A funding also comes with anti-dilution provisions.
The main aim of the Series A funding is to ensure the continued growth of your organization. Perhaps, some of the common goals in this funding stage would include achieving product development and hiring the right talent. The largest investors in Series A funding are venture capital firms that specialize in early-stage start-ups.
What you need to know in the Series A funding stage
As a start-up, there are important legal terms you need to achieve for a successful due diligence process and receive future investment. Generally, Series A fundraising provides an investor with particular economic and control rights, such as the right to exchange preferred stock to common stock somewhere down the future.
These rights could also comprise veto powers, board seats and liquidity preference. That is why it is vital to ensure that all pertinent legal documents are comprehensively and end-to-end secured. That is why it’s impossible to overemphasize the importance of PDF DRM to safeguard your Series A documents to help investors securely review the documentation and your intellectual property before they fund your venture.
To understand how to organize your Series A funding documents and streamline the investment due diligence procedure, let’s look at what you need to know.
Series A funding documents
As the founder of a start-up, the documents dictate the economics and control you wish to offer to investors. The documents include:
- The term sheet spells out the terms and conditions under which the investor agrees to invest.
- Stock purchase agreement or SPA that determines particular terms and conditions concerning the sale of shares to the investors.
- SPA disclosure schedules that dictate exceptions or explain the warranties agreed upon in the SPA.
- The voting agreement that puts down requirements for how specific shareholders must vote for their shares in certain circumstances.
- Investor rights agreement [IRA] that lays down privileges and rights presented to shareholders.
- Right of refusal or co-sale agreement that provides your company the first opportunity of purchasing shares of an investor wishing to sell them.
- Certificate of incorporation that dictates privileges and rights that come with owning preferred stock.
Importance of PDF DRM in controlling series a funding documents
Digital Rights Management [DRM] presents you with the ability to restrict copies, printing, editing and access control of your Series A funding documents.
An advanced and forward-looking PDF DRM that contains vital attributes such as revocation of access and document expiry, file tracking, watermarking, and more can prevent any individual from freely accessing the information in the documents. It presents a complete suite of encryption, permissions, file tracking, watermarking and access control features in a single and unified document security solution without getting various pieces of expensive software working together.
Without funding and finances, any entrepreneurial initiative may fade. The quantum of finances needed to take a growing company towards profitability is typically well beyond conventional loans or finances from friends and family to survive.
After the seed round, getting into Series A funding allows you to raise the amount you need to accomplish your goals while at the same time presenting a reasonable and attractive enough valuation to investors. Here is where you need to develop due diligence and financials for prospective investors to take an interest in your company. Ensuring watertight security around your Series A documents can make all the difference in safeguarding your intellectual property and copyright.
PDF DRM restricts the copying, printing and forwarding of sensitive and confidential documents to control the unintended or illegal distribution of information.