Last month, Silicon Valley attorney Ted Wang and a group of collaborators published the “Series Seed Financing Documents.” This set of free legal documents is intended for early stage companies raising up to $1.5MM in seed capital. The goal of this effort is to decrease the time and dollars spent in creating transaction documents, as well as to level the playing field between companies and investors.
By many accounts this is the fourth set of free, open-source seed stage documents (entire list). Supporting Wang is prominent venture capital firm Andreeson Horowitz (started by the founder of Netscape), and a slew of venerable investors such as Ron Conway and First Round Capital.
The documents allow for certain terms like price per share to be filled in the blank. However, more standard clauses such as investor voting rights are boilerplate. The documents also include future rights, board seats, and information rights, amongst other clauses.
Minneapolis Attorney Kevin Spreng is no stranger to venture deals, having worked as lead counsel in hundreds of transactions for Robins, Kaplan, Miller & Ciresi and Crescendo Ventures. He acknowledges the Series Seed documents are not perfect, but applauds the effort as a good start.
Spreng notes that open source documents can slightly reduce barriers to raising money. “It will potentially be easier for the company to make an offer,” Spreng said. “And it might make it easier for investors to sign up.”
Obviously not all investors plan to use these documents. Twitter board member and Union Square Ventures Managing Partner, Fred Wilson, supports the intent, but “can’t and won’t get behind the Series Seed forms because they leave out some critical stuff that we simply won’t do a deal without.”
While the documents are completely free, they do stipulate that the company shall reimburse investor’s counsel for a flat fee of $10,000. This amount in legal fees pales in comparison to the $50,000-$100,000 often incurred in venture financings. Spreng cautions investors using minimal counsel. “If investors are doing a seed deal without due diligence, you are making a decision that there will be less upfront cost with potentially more risk in the end.”
In the end, it is the strength of the company and its product/service that will lead to success. “These docs alone will not make it easier for a Minnesota startup to raise funds,” Spreng said. “The challenge is still finding the money!”