Seed Financing and Early Stage Financing for Startups: Introduction to Angels, SAFEs, Convertible Notes and Venture Capital

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Thursday, April 4, 2024
12:00 PM - 01:00 PM Eastern Daylight Time
11:00 AM - 12:00 PM Central Daylight Time
09:00 AM - 10:00 AM Pacific Daylight Time

Partners Michael Barron and Andrew Hamilton and associate Zachary Zemlin discussed seed financing and early-stage financing for startups.

Key Takeaways

Considerations When Structuring

  • Who are the investors and what are their preferences?
  • How much capital is being invested?
  • What are the costs?
  • What is the timing?

Possible Deal Structures

There are different options to consider for the specific form of seed financing a company may seek:

  • Common Stock
    • The most basic form of equity, with low transaction costs and generally no special “investor-style” rights
  • Series Seed Preferred Stock
    • A form of preferred stock equity generally used for venture capital and sophisticated angel financings prior to an “A” round (the company and the investor(s) agree on a pre-money valuation)
  • Convertible Debt
    • A debt security that may convert into an equity security; an often-used option, particularly in smaller and earlier raises when a pre-money valuation is not possible or desirable
  • SAFEs
    • A “Simple” Agreement for Future Equity with some equity-like features often used for incubator financings, very early financings, and very small financings (when a pre-money valuation is not possible or desirable)
  • Others include:
    • Founder Preferred Stock – possible path to early liquidity for a founder
    • Rule 506(c) Financings – can publicly advertise an equity offering but need to qualify investors as being “accredited investors”