Open Sourced Model Seed Financing Documents

Open Sourced Model Seed Financing Documents

These documents were created by Cooley, LLP, and we thank them and Michael Platt and Noah Pittard specifically for allowing us to release them publicly. There are both equity and debt documents below.

Please feel free to use these documents, but please do so responsibly only after retaining your own legal counsel. Don’t use these documents blindly. All of the figures in them are made up, and are not necessarily accurate or consistent. We’ve made best efforts to call out the places that need to be edited based on the situation using brackets. But still, using these documents for a real financing and without good legal advice is just plain foolish. Think of them as a good starting point that can save you some time and money.

TechStars never leads the investment rounds of our companies, but we always provide these documents as a starting point for the entrepreneurs and lead investors. We’ve seen them used very successfully with our companies since 2007, including many exits and follow on financings. Using these documents as a starting point, our companies have been able to complete equity financings for legal costs in the $5-10k range on a regular basis.

Equity Financing Structure

Here are the model seed funding documents that we open sourced in February of 2009. We think that they’re great model documents for an angel or seed financing in the $250k-$2M range. They represent a “light” preferred equity financing and have very simple terms that are generally “balanced” but if anything lean toward the entrepreneurs and represent a great deal of trust in them, which we think is appropriate for angel deals where you are primarily investing in the people at the early stage.

Things usually start with a Term Sheet which describes the basic agreements about the investment. The term sheet lays out the proposed capitalization which includes number and type of shares for each shareholder and their relative ownership percentages, post-financing. It goes on to describe the liquidation preference, mechanics of conversion, how the board of directors will be determined, protective provisions, and other rights and agreements. The term sheet is not a definitive document – it just describes the basic agreement. This is the one we promote and use.

The other documents come into play at closing. They are:

* The Restated Articles (of incorporation), which are typically needed to properly document the existence and treatment surrounding the new class of preferred stock.
* The Bylaws, which describe in detail how the corporation will be governed.
* The Subscription Agreement, which documents the actual investment.
* And finally, the Board Member Election Consent which elects the board member representing the investors.

Here is an archive containing all of the equity documents.

Debt Financing Structure

There is a convertible promissory note purchase agreement, which sets for the agreement relating to the note. Then there is the actual note. And of course the associated term sheet.

Suggested Resources

*If using the debt financing structure, we strongly encourage you to read the convertible debt series of blog post on AskTheVC.com as a counterpart.
*If using the equity structure, please see the term sheet series on Brad Feld’s blog (co-authored with Jason Mendelson).
*Check out Venture Deals: How to be Smarter than your Lawyer and Venture Capitalist