When Notes Convert
Key Series A Funding Documents
The SPV lead typically has to sign all of these when the SAFEs or Convertible Notes signed by the SPV convert to equity. If there is insterest paid on a convertible note, it will be used to buy more equity and will be reported on K1 for that year.
1. Term Sheet
Purpose: Outlines the basic terms and conditions of the investment
Key elements: Valuation, investment amount, investor rights, and governance
2. Stock Purchase Agreement
Purpose: Formalizes the sale of shares to investors
Key elements: Number of shares, price per share, representations and warranties
3. Amended and Restated Certificate of Incorporation
Purpose: Updates the company's charter to reflect new capital structure
Key elements: New classes of stock, rights and preferences, authorized share count
4. Investors' Rights Agreement
Purpose: Defines specific rights granted to investors
Key elements: Registration rights, information rights, board observation rights
5. Voting Agreement
Purpose: Establishes voting arrangements among shareholders
Key elements: Board composition, drag-along rights
6. Right of First Refusal and Co-Sale Agreement
Purpose: Gives the company and major investors priority in share purchases
Key elements: ROFR terms, co-sale rights for investors
7. Management Rights Letter
Purpose: Grants investors certain management rights (often for ERISA purposes)
Key elements: Information access, consultation rights.
8. Disclosure Schedule
Purpose: Provides detailed information about the company's affairs
Key elements: Exceptions to representations and warranties, material contracts
9. Board Resolutions
Purpose: Formally approves the financing and related actions
Key elements: Authorization of stock issuance, approval of transaction documents
10. Shareholder Resolutions
Purpose: Obtains necessary shareholder approvals
Key elements: Approval of new stock issuance, waiver of preemptive rights
This overview provides a more comprehensive explanation of the key documents involved in a Series A funding round and their purposes. Most Series A deals are fairly straightforward and in all, the deal terms are controlled by the major investors or key board members from the previous round.
Even large SPVs have very little say in what happens - but as SPVs become a bigger piece of venture investing, that may change.
