What do definitive documents for a Series A financing look like?

May 15, 2007

The National Venture Capital Association has posted model venture capital financing documents on its web site.

The principal documents in a Series A financing include:

  1. Stock Purchase Agreement
  2. Amended and Restated Certificate of Incorporation
  3. Investor Rights Agreement
  4. Right of First Refusal and Co-Sale Agreement
  5. Voting Agreement

In addition, there is a schedule of exceptions, legal opinion, officer’s certificate, secretary’s certificate, management rights letters, indemnification agreements, form of confidential information and invention assignment agreement, board consent, stockholder consent, good standing certificates, stock certificates, along with any documents to deal with deferred corporate housekeeping.

Most law firms actively involved in representing companies or investors in venture capital financings have their own forms, including WSGR. In fact, WSGR has invested time and resources in developing a Series A document automation system that produces an initial draft of financing documents after completing a TurboTax-style online questionnaire. Attorneys still need to review and further customize the drafts, but this document automation system allows attorneys to circulate initial drafts of documents quickly and reduce time in marking up form documents. WSGR also has an automated system to create the various documents involved in an incorporation of a typical Delaware company.

Entrepreneurs should not read the NVCA documents and conclude that the default provisions represent a “middle of the road” outcome between the company and investors. There is an “East Coast” bias in the documents, which means the documents are more investor favorable than “West Coast” market practice. Given that California alone represents over 40% of venture capital financing transactions in the United States, I don’t think that these documents accurately reflect what is customary in financings. In addition, there are some technical issues with the documents that need to be addressed.