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 used in larger deals. 

But Safes and notes don’t provide clear IRS Code 1202 (QSBS) benefits. With recent tax law changes enhancing IRC 1202, those benefits are even more important. 

Investors want preferred stock. Convertibles are quick and cheap proxies for what investors want. And founders don’t want the heavy dilution that can result with a Safe. Neither of them want the cap table confusion and conversion uncertainty inherent in Safes and notes. But until now, preferred stock has been too complex and expensive for early-stage deals. 

The NVCA Series A deal requires 5 main deal documents totaling over 150 pages! Legal fees for each side are over $50k!

Ted Wang’s simplified Series Seed preferred stock alternative is brilliant. But the purchase agreement is 15+ pages and the deal can still require legal fees far above those for a Safe. It’s great for larger deals.

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

The purchase agreement is 6 pages, just like a Safe. All the main deal terms are clearly laid out in a table on the first page. Investors get actual preferred stock. No IRC 1202 QSBS uncertainty. No crazy dilution or cap table uncertainty.

Importantly, the Series First documents allow for “high resolution” financing, just like a Safe. The only extra step is that the company will first file an Amended and Restated Charter to authorize the preferred stock. Once that’s filed, the founders can raise money on those terms with one agreement for each investor as the investors are ready to invest. The Series First Charter is designed so it can be redlined against the Series Seed template.

Side letters can be added for additional terms. But like the Safe, the Series First is intended to be a simple, standard template that isn’t modified. 

I'm an attorney and partner at Rimon, P.C., with over 23 years of experience representing founders and investors in early-stage financing, company formation, mergers & acquisitions and related ECVC guidance. You can read more about me and contact me at Rimon here: https://www.rimonlaw.com/team/brian-dirkmaat

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