Series Seed are a set of simplified, standardized investment documents put forth by Marc Andreessen that have become popular for companies taking their first outside investments. They allow investors and start ups to avoid expensive legal fees inolved in drafting these documents, and ensure that both sides get a fair shake. Series Seed documents are “Series A Ligjht” convertible preffered documents.
Q. OK, we can guess this relates to seed funding of startups, but what exactly is “Series Seed”?
A. This refers a set of simplified investment documents that have become pretty widely accepted as standard for first outside money into a company. They’re available for free online. For years, there’s been a huge problem in startup land, which is that if a seed round is only for, say, $300k, you don’t want to spend $50k on legal fees– or burn the time to negotiate documents, especially because a lot of entrepreneurs were pretty unsophisticated about what should be in them.
Q. So this is an effort to have industry-wide, simplified documents that everyone can use?
A. Right. This particular effort is from Marc Andresson, and the docs were drafted by an excellent law firm. There are a few other sets out there, too, from Y Combinator, the NVCA, and one or two others. There fairly similar. Standardization is a great thing for the industry, especially as the JOBS act takes effect.
Q. Are these “next round notes” type documentation, or more like classic VC Series A preferred stock?
A. That’s a huge point. These are “Series A Light” convertible preferred documents. We’ve talked about “Next Round Notes” before here, but those are really loans that convert to equity when the institutional funding shows up. Avoids the value question on day 1, which is good, but many VCs don’t like them.
Q. At the end of the day, what’s the difference between next round notes and convertible ?
A. The convertible preferred converts into common 1:1, so you’re effectively buying common stock of the startup, but with lots of protections in it regarding your stock rights, dilution, things like that. Remember that good VCs help build companies, and they want to participate in that value by being true equity holders from day one.
Q. And why don’t next round notes do that?
A. Because there, the notes convert into the next rounds value: the entrepreneur wants that as high as possible; but now the VC wants it as low as possible. A convertible preferred better aligns the VC and entrepreneur. That’s why they like the SeriesSeed approach.