Seed Funding Agreement

I would not spend too much time on that part of a seed contract. A balanced compromise would be to agree on the weighted average of the anti-dilution described above. In all seed I, Seed II and/or Pre-Series A financing cycles in my SaaS portfolio, either there was no protection against dilution or the parties agreed on the weighted average. A much less drastic implementation of some investor protection against future rounded is the Weight Protection Scheme. As the name suggests, this safeguard mechanism spreads the risk of future downwards between investors and founders (all other common shareholders). In principle, this anti-dilution protection takes the average of the two (or sometimes more) relevant financing cycles and compensates investors in the previous round as if they had invested at this average price per share. In order to put the comparative financing cycles in a fair perspective, the average is calculated by the price per share and the number of shares issued during the respective rounds. The result would be the weighted average between the two funding cycles. A little simplified, this anti-dilution protection can be described as a “Meet in the Middle” approach and is generally implemented as follows: the lawyer`s role is to write the change note. Normally, the company and the investor will turn to the investment and write it down as an appointment sheet. After further communications with the parties, counsel may obtain their consent in the note. There are five rounds of fundraising in the economic growth of a startup.

They are usually called round “family and friends,” the seed round, then the A, B and C safety bid rounds. Previous articles have given an overview of these rounds and a deep look at the family and friends tour. This organization includes the three most common means of investment for seed financing and the legal documents required for each of them. The right to buy a certain number of shares in nominal terms has the effect of reducing the actual valuation of the previous financing cycle. The more anti-dilution rights holders can acquire more shares at a later date for nominal rights, the more retroactively the valuation will be reduced. At first glance, such a provision may seem like a nice compliment to the founders and their company, and it seems to be an early commitment to a strong participation in future Series A financing. However, these agreements hide a number of problems that the founders should at least be aware of. There are three main vehicles for seed financing: the convertible bond, safe and the issuance of preferred shares.