Series First Financing Documents

We need a new early-stage financing alternative. The Safe has been a great solution for early-stage financing since 2013. Safes and convertible notes are becoming the standard for early-stage deals and are also used in larger transactions.

However, Safes and notes don’t provide clear IRS Code 1202 (QSBS) benefits. With recent tax law changes enhancing IRC 1202, those benefits have become even more crucial.

Investors are increasingly seeking preferred stock. Convertibles serve as quick and inexpensive proxies for what investors truly desire. Founders, on the other hand, are wary of the heavy dilution that can arise from a Safe. Both parties want to avoid the cap table confusion and conversion uncertainty that come with Safes and notes. Until recently, preferred stock has been too complex and costly for early-stage deals.

The NVCA Series A deal requires five main deal documents totaling over 150 pages! Legal fees for each side exceed $50k!

Ted Wang’s simplified Series Seed preferred stock alternative is brilliant, but the purchase agreement is still over 15 pages, and the deal can incur legal fees that far surpass those for a Safe. It works well for larger deals.

With these documents, investors and founders now have a simple and elegant preferred stock alternative called Series First. 

The purchase agreement is just 6 pages long, similar to a Safe. All the main deal terms are clearly laid out in a table on the first page. Investors receive actual preferred stock, eliminating any IRC 1202 QSBS uncertainty. There’s no excessive dilution or cap table confusion.

Importantly, the Series First documents allow for “high resolution” financing, just like a Safe. The only additional step involves filing an Amended and Restated Charter to authorize the preferred stock. Once that’s filed, founders can raise capital based on those terms with one agreement for each investor as they are ready to invest. The Series First Charter is designed to be easily integrated with the Series Seed template.

Side letters can be added for additional terms. However, like the Safe, the Series First is intended to be a straightforward, standard template that remains unmodified.

I'm an attorney and partner at Rimon, P.C., bringing over 23 years of experience in early-stage financing, company formation, and mergers & acquisitions. I specialize in guiding founders and investors through processes like the Series First Agreement and exploring preferred stock alternatives. You can read more about me and contact me at Rimon here: https://www.rimonlaw.com/team/brian-dirkmaat

Neither I, Tower 19, PC, nor Rimon, P.C., assume any responsibility for any consequence of using these documents related to early-stage financing, and we do not endorse or recommend the use of any default values or any document on this website, including the Series First Agreement or preferred stock alternative. The information and documents on this website are available for your information only and are not intended to constitute legal advice, create an attorney-client relationship, or serve as advertising or a solicitation of any type. You should consult with an attorney licensed to practice in your jurisdiction as well as tax and other relevant advisors before using or relying on any information or documents on this website. I, Tower 19, PC, and Rimon, P.C., expressly disclaim all warranties, express or implied, and any liability related to any information or documents on this website or your reliance or use of them. You assume all risk and liability that may result from relying on any information or documents on this website.