Yair Udi

Venture debt provides an alternative financing option for startups that are backed by institutional venture capital but might not yet be eligible for traditional commercial loans. Since banks typically require personal guarantees or sufficient collateral, which early-stage startups often lack, venture debt is structured to accommodate the unique needs and risks of startups with VC backing.

Structure of Venture Debt

For venture lenders, the key validation for lending comes from the startup’s venture capital investors, who are seen as strong backers and, if needed, would be willing to provide additional equity to support the company. This relationship gives the lenders confidence, knowing that their risk is somewhat mitigated by the deep pockets of venture investors.

Despite this, startups are still considered high-risk borrowers. Consequently, venture debt is generally asset-based, meaning the loan amount depends on the health of the company’s balance sheet at the time of borrowing. The lender will assess the assets the company has at its disposal and offer financing based on those metrics.

Equity Warrants and Upside

To balance the inherent risks of lending to startups, venture debt deals often include equity warrants. A warrant allows the lender to purchase equity in the company at a later date, typically at a fixed price. The warrant coverage is usually a percentage of the loan’s principal balance, and this serves as a way for the venture lender to participate in the startup’s potential upside.

For example, a lender might provide venture debt with warrants that allow them to purchase shares equivalent to 10% of the principal loan amount. If the startup succeeds and reaches a high valuation, the lender can exercise these warrants to benefit from the company’s growth, effectively making the venture debt a hybrid between traditional debt and equity financing.

Risk and Return

The major trade-off for lenders is the high risk of startup failure. Venture debt providers accept that a significant portion of their portfolio may not succeed. However, the potential for substantial returns from a small number of high-growth startups helps to offset the losses from the majority of underperforming companies. The goal is to make enough on these “home-run” investments to compensate for the overall failure rate in the startup ecosystem.

This combination of debt financing with equity upside through warrants provides venture lenders with a balanced way to participate in the startup ecosystem, offering more favorable lending terms to growing companies while still aligning their interests with the potential for significant returns.

THIS ARTICLE IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DO NOT CONSTITUTE LEGAL ADVICE. THIS ARTICLE IS PROVIDED WITHOUT ANY WARRANTY, EXPRESS OR IMPLIED, INCLUDING AS TO ITS LEGAL EFFECT AND COMPLETENESS. THE INFORMATION SHOULD BE USED AS A GUIDE AND MODIFIED TO MEET YOUR OWN INDIVIDUAL NEEDS AND THE LAWS OF YOUR STATE, BY INDEPENDENT COUNSEL YOU RETAIN. YOUR USE OF ANY INFORMATION CONTAINED IN THIS ARTICLE, IS AT YOUR OWN RISK. WE, OUR EMPLOYEES, CONTRACTORS, OR ATTORNEYS WHO PARTICIPATED IN PROVIDING THE INFORMATION CONTAINED HEREIN, EXPRESSLY DISCLAIM ANY WARRANTY, AND BY DOWNLOADING OR USING OR RELYING ON THIS ARTICLE; NO ATTORNEY-CLIENT RELATIONSHIPS ARE CREATED. DO NOT USE THIS ARTICLE WITHOUT AN INDEPENDENT LAWYER YOU HAVE SPECIFICALLY RETAINED FOR SUCH PURPOSE.

© 2024 Yair Udi – Law Offices. All rights reserved

By the time your startup has successfully used Series A funds to build a scalable business, you’re likely thinking about how to fuel even faster growth. Enter the later funding rounds: Series B, Series C, and beyond. These are the rounds where you’ll raise larger amounts of capital to accelerate your company’s expansion. Each round brings new investors, bigger opportunities, and more complex negotiations, but also new challenges.

Here’s what you need to know about Series B and beyond:

How Much Money Are We Talking About?

The funds raised in later rounds can vary a lot, but here’s a rough guide:

• Series B: You’re looking at somewhere between $15 million to $40 million.
• Series C and beyond: This can easily scale to $100 million or more.

Of course, the size of each round depends on a range of factors like your industry, market conditions, and the specifics of your business.

Who’s Writing the Checks?

In Series B and C, you’ll mostly see venture capital (VC) firms and maybe some corporate investors jumping in. As you go further into later-stage rounds, expect to see a broader range of investors including private equity firms, hedge funds, mutual funds, and even sovereign wealth funds. These investors are looking for different kinds of returns, but they all have one thing in common: they want to see rapid growth and a path to a big exit.

What Are They Investing In?

Most investors in these rounds will still be buying convertible preferred stock. Since you’ve already issued this in Series A, it’s easiest to keep things consistent by issuing new convertible preferred stock with updated terms, which will be layered on top of the existing terms from earlier rounds. This keeps things moving smoothly and allows you to build on the foundation of your previous rounds.

Negotiating the Details

When it comes to negotiating your next round of funding, there are a few areas that usually take up most of the conversation.

Who Has the Power to Say ‘Yes’ or ‘No’?

As new investors come on board in these later rounds, one of the first things you’ll have to negotiate is voting rights. Investors may want veto power over certain actions that could affect their investment—especially when they’re paying a premium for their shares.

The existing investors may not love the idea of giving new investors veto rights, but they might be willing to do so if they can get similar power for themselves. Meanwhile, you (and probably your team) will likely prefer that the majority of your investors have the final say, rather than giving anyone a blanket veto.

Board Composition: Who’s on the Team?

When you raise more money, it usually means restructuring your board. In a Series B round, it’s common to have a board with a mix of people: two seats for common stockholders (founders and key employees), three seats for the investors (one each from Series Seed, A, and B), and one independent director chosen by mutual agreement.

As your company grows, the board size often grows too, and each new round may bring fresh discussions about the board’s composition. The key question here is: Who gets to stay, who goes, and who gets the power?

Protecting Investors’ Interests: What’s on the Table?

Later-stage investors are usually more focused on ensuring they get a solid return on their investment. They may want provisions that allow them to block the sale of the company if it doesn’t meet their target return. They’re typically looking for a minimum 2x return on their investment before they’ll approve a sale, even if the rest of your investors want to move forward.

Representations and Warranties: The Legal Stuff

As your company matures, so do the legal requirements. In these later rounds, investors will expect more thorough representations and warranties about your business, especially as the amounts they’re putting in are much larger. These are legal safeguards to make sure the company is in good shape before they commit their funds.

Founder and Employee Liquidity: Getting Out Some Cash

One of the biggest challenges founders face is the lack of liquidity—your wealth is tied up in the company. Founders often don’t get paid nearly as much as the executives in larger companies, and the majority of their wealth is tied to the value of their stock.

To help balance things out, founders will sometimes negotiate secondary sales, giving them (and possibly early employees or angel investors) a chance to sell a portion of their shares in the company as part of the new round of funding. This can give them some financial flexibility while still holding onto a significant portion of the business. For more info on this, see our guide to Late-Stage Startup Liquidity.

Bridge Financing: When You Need a Little Extra Time

Bridge financings are a common tool for startups that need a quick capital boost before they can close a larger round or finalize a sale. These are often structured as convertible notes, which are pretty similar to the convertible notes used in seed rounds, but the terms are different.

Bridge notes are typically used in two main situations:

1. Bridges of Necessity: These come into play when your company is in distress and needs quick funding to avoid shutting down. In these cases, your existing investors may step in with additional capital to keep things afloat. These notes often come with more attractive terms for investors since they’re taking on higher risk. The investors might get a priority on their money back or even ask for security (in the form of company assets).
2. Bridges of Choice: In these cases, your company is doing well but just needs a bit more time (and cash) to hit a key milestone that will help you raise a larger round at a higher valuation. Investors are happy to provide the capital at favorable terms, usually with lower interest rates and fewer penalties, since they know the company is on the right track.

Final Thoughts: What’s Next?

As your company grows, you’ll likely go through multiple rounds of financing, each one taking you closer to an exit, whether it’s through an IPO or acquisition. But keep in mind that while some startups make it to the public markets, many are sold before that happens.

What’s crucial is to stay focused on building a sustainable business that attracts the right kind of investment at the right time. And remember, in the world of startup financing, things are always evolving. You’ve got to be prepared for change, negotiation, and growth at every stage.

THIS ARTICLE IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DO NOT CONSTITUTE LEGAL ADVICE. THIS ARTICLE IS PROVIDED WITHOUT ANY WARRANTY, EXPRESS OR IMPLIED, INCLUDING AS TO ITS LEGAL EFFECT AND COMPLETENESS. THE INFORMATION SHOULD BE USED AS A GUIDE AND MODIFIED TO MEET YOUR OWN INDIVIDUAL NEEDS AND THE LAWS OF YOUR STATE, BY INDEPENDENT COUNSEL YOU RETAIN. YOUR USE OF ANY INFORMATION CONTAINED IN THIS ARTICLE, IS AT YOUR OWN RISK. WE, OUR EMPLOYEES, CONTRACTORS, OR ATTORNEYS WHO PARTICIPATED IN PROVIDING THE INFORMATION CONTAINED HEREIN, EXPRESSLY DISCLAIM ANY WARRANTY, AND BY DOWNLOADING OR USING OR RELYING ON THIS ARTICLE; NO ATTORNEY-CLIENT RELATIONSHIPS ARE CREATED. DO NOT USE THIS ARTICLE WITHOUT AN INDEPENDENT LAWYER YOU HAVE SPECIFICALLY RETAINED FOR SUCH PURPOSE.

© 2024 Yair Udi – Law Offices. All rights reserved

If you’ve made it past seed — meaning you’ve raised enough to build an MVP, prove the market is real, and convince at least a few humans to pay or use your product — congrats. That’s no small feat. Now comes the next big step in startup life: Series A.

This is the round where institutional investors (mostly VCs) show up. They’re not just betting on a slide deck anymore — they want traction, a real market, a team that can scale, and a product that can grow into something significant. Series A is where startups transition from “trying things” to “building things.” You’re scaling, hiring, expanding — and you’ll need more fuel to do that.

Let’s walk through what that really looks like, minus the legalese.

How Much Are We Talking?

Series A rounds usually raise between $4M to $20M (yes, that’s a wide range), but where you land depends on your traction, sector, and investor appetite. If you’re in deep tech or fintech, expect to be on the higher end. If you’re B2B SaaS in a niche market, maybe not.

Who’s Writing the Checks?

This is VC territory — early-stage venture funds, sometimes with the occasional super-angel or family office riding along. You’ll be dealing with partners who’ve seen a hundred pitches like yours. Your job is to convince them why yours is the one they should bet on.

What Are They Buying?

Almost always, it’s preferred stock — specifically, Series A Preferred Stock. These aren’t SAFEs or convertible notes anymore. Preferred shares come with a bunch of rights and protections (more on that in a sec), and they set the tone for future rounds.

The docs and terms are pretty standardized nowadays, thanks to the NVCA templates. That helps keep legal bills down (somewhat), and lets founders focus more on negotiation and less on reinventing the legal wheel.

So What’s in These “Terms”?

Let’s break down the big ones:

Liquidation Preference

This is the “get your money back first” clause. If your company sells or liquidates, Series A investors get their investment back before anyone else — usually dollar-for-dollar (that’s called a 1x liquidation preference).

If the company does well and the sale price is high, investors can convert to common stock and take a bigger chunk of the exit. They get the better deal, not both (unless you gave them participating preferred, aka a “double dip” — increasingly rare and not founder-friendly).

Dividends

Technically, preferred stock can come with dividends, but most early-stage deals skip this or just say “no dividends unless the common gets the same.” Don’t worry about building a dividend-yielding machine — VCs are here for the big exit, not quarterly income.

Conversion

VCs can convert their preferred shares into common stock at any time — usually on a 1:1 basis (one preferred = one common), subject to anti-dilution math. Also, their shares typically auto-convert into common stock if the company goes public or if a majority of preferred holders agree to it.

Anti-Dilution

If you do a down round (raising at a lower valuation later), early investors get protection. They’ll get more shares when they convert, to make up for the lower price — this is called price-based anti-dilution protection.

Most common? Broad-based weighted average — a formula that softens the dilution without being brutal. Stay away from “full ratchet” if you can — that one hurts.

Protective Provisions

Series A investors usually don’t control the board, so they get veto power over big decisions. That includes stuff like:

• Issuing more preferred stock
• Amending your charter
• Selling the company
• Paying dividends
• Changing board size
• Doing anything that messes with their rights

It’s basically a list of “don’t screw us over” clauses — reasonable in most cases, but worth negotiating.

Board Seats

The lead VC usually gets a board seat. That’s fair — they’re giving you millions and want a say. But that doesn’t mean they control the board (unless you give them majority). Most A rounds still leave founders in control, at least for now.

If they don’t get a seat, they’ll want a board observer role — they sit in, listen, but don’t vote.

Registration Rights

This comes into play if you go public. Investors want the right to force a registration (demand rights), join your IPO (piggyback rights), or file a shelf registration. Legal cleanup stuff — standard and not usually controversial.

Info Rights

Expect to share your financials — quarterly, sometimes monthly, plus budgets and forecasts. Big investors will want visibility into how the business is performing. They’ll probably waive their statutory rights in exchange for this setup.

Pro Rata Rights

Series A investors typically want the right to maintain their ownership percentage in future rounds. If you raise a Series B, they get first dibs to invest before new folks come in. This is called a right of first offer (ROFO) or a pro rata right.

Right of First Refusal (ROFR)

If a founder wants to sell some of their own shares, the company gets first crack at buying them. If the company passes, the Series A investors get second dibs. This keeps shares from ending up in random hands.

Co-Sale Rights

If a founder does sell shares, and neither the company nor the VC buys them, the VC can tag along and sell some of their own shares too, on the same terms.

‍ Drag-Along

This one’s about getting a clean exit. If the founders + Series A majority agree to sell the company, they can force all other shareholders to go along. No holdouts. It streamlines the process when it’s time to sell.

Management Rights

Big VCs often require something called “management rights letters”. It’s a formality that allows them to consult with you and comply with their own fund rules (especially under ERISA). You’ll barely notice it.

Final Thoughts

Series A is a milestone — not just financially, but emotionally and operationally. It’s when you go from being a “startup” to a real company. The stakes are higher. The decisions are bigger. The partners are more sophisticated.

You’ll be giving up some control, yes — but ideally, you’re gaining partners who will help you scale the mountain.

Read the docs. Ask the dumb questions. And make sure the people you’re taking money from are people you want in your corner — for the good days and the chaotic ones.

THIS ARTICLE IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DO NOT CONSTITUTE LEGAL ADVICE. THIS ARTICLE IS PROVIDED WITHOUT ANY WARRANTY, EXPRESS OR IMPLIED, INCLUDING AS TO ITS LEGAL EFFECT AND COMPLETENESS. THE INFORMATION SHOULD BE USED AS A GUIDE AND MODIFIED TO MEET YOUR OWN INDIVIDUAL NEEDS AND THE LAWS OF YOUR STATE, BY INDEPENDENT COUNSEL YOU RETAIN. YOUR USE OF ANY INFORMATION CONTAINED IN THIS ARTICLE, IS AT YOUR OWN RISK. WE, OUR EMPLOYEES, CONTRACTORS, OR ATTORNEYS WHO PARTICIPATED IN PROVIDING THE INFORMATION CONTAINED HEREIN, EXPRESSLY DISCLAIM ANY WARRANTY, AND BY DOWNLOADING OR USING OR RELYING ON THIS ARTICLE; NO ATTORNEY-CLIENT RELATIONSHIPS ARE CREATED. DO NOT USE THIS ARTICLE WITHOUT AN INDEPENDENT LAWYER YOU HAVE SPECIFICALLY RETAINED FOR SUCH PURPOSE.

© 2024 Yair Udi – Law Offices. All rights reserved

When startups look to raise their first rounds of equity capital, they generally face a choice: sell common stock or issue preferred stock, most often in the form of convertible preferred stock. The latter is far more common and reflects market norms even in seed-stage deals—especially those involving professional angel investors or micro-VCs.

Convertible Preferred Stock

Convertible preferred stock sits at the intersection of investor protection and company flexibility. While not as prevalent in early-stage financings as it is in institutional rounds, it’s increasingly common for seed investors to insist on this structure. Typically labeled Series Seed Preferred Stock, this instrument gives investors a tailored suite of rights and preferences that strike a balance between simplicity and protection.

Historically, Series Seed financings were stripped-down versions of the more robust Series A rounds, omitting more complex provisions around participation rights, protective provisions, or anti-dilution adjustments. But that landscape has shifted. It’s now common for Series Seed rounds to closely resemble Series A terms—especially as legal templates like the Series Seed Documents (from Cooley, Fenwick, et al.) become more institutionalized. These deals now frequently include standard investor rights, board representation, and pro rata participation rights.

Common Stock

Selling common stock to seed investors is far less common, and for good reason. Common stock—typically the same security held by founders—offers few protections to outside investors. Holders receive basic governance rights (like voting on directors), a proportional claim on distributions or liquidation proceeds, and little else.

Why is this an issue?

Because most early-stage investors, even angel investors, expect the kind of protections that preferred stock provides: liquidation preferences, conversion rights, and at least some control features. Common stock lacks these, making it a harder sell to seasoned backers.

But issuing common stock can create challenges for the company too, particularly around equity incentives. When a company sells common stock to outside investors, it effectively sets a valuation floor for future issuances of common stock, including to employees under the stock option plan. This can raise the 409A valuation of the stock, increasing the strike price of employee options, and therefore reducing their perceived value. That’s a real problem for talent attraction at the earliest and riskiest stage.

THIS ARTICLE IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DO NOT CONSTITUTE LEGAL ADVICE. THIS ARTICLE IS PROVIDED WITHOUT ANY WARRANTY, EXPRESS OR IMPLIED, INCLUDING AS TO ITS LEGAL EFFECT AND COMPLETENESS. THE INFORMATION SHOULD BE USED AS A GUIDE AND MODIFIED TO MEET YOUR OWN INDIVIDUAL NEEDS AND THE LAWS OF YOUR STATE, BY INDEPENDENT COUNSEL YOU RETAIN. YOUR USE OF ANY INFORMATION CONTAINED IN THIS ARTICLE, IS AT YOUR OWN RISK. WE, OUR EMPLOYEES, CONTRACTORS, OR ATTORNEYS WHO PARTICIPATED IN PROVIDING THE INFORMATION CONTAINED HEREIN, EXPRESSLY DISCLAIM ANY WARRANTY, AND BY DOWNLOADING OR USING OR RELYING ON THIS ARTICLE; NO ATTORNEY-CLIENT RELATIONSHIPS ARE CREATED. DO NOT USE THIS ARTICLE WITHOUT AN INDEPENDENT LAWYER YOU HAVE SPECIFICALLY RETAINED FOR SUCH PURPOSE.

© 2024 Yair Udi – Law Offices. All rights reserved

In the world of early-stage startup fundraising, time is often the rarest currency. Legal costs can’t drain the little capital you have, and debt maturity dates can sneak up faster than traction does. It was in this tension that Y Combinator popularized the SAFE—the Simple Agreement for Future Equity—a leaner, friendlier alternative to convertible notes that lets startups raise cash without the ticking clock of debt.

Unlike convertible notes, a SAFE doesn’t carry interest and never matures. There’s no date looming in the distance when your backers can ask for their money back. That makes SAFEs uniquely attractive for very young startups who need time, not pressure. It also means you avoid negotiating extensions when your seed capital is spent, but your Series A hasn’t landed. The SAFE isn’t a loan. It’s a promise: if and when the company raises its next round of equity, the SAFE holder will convert into that round, usually at a better price than the new investors pay.

The discount or valuation cap (or both) written into the SAFE are the investor’s reward for coming in early. And when that future equity financing materializes, the SAFE turns into preferred stock under the same mechanics as a convertible note, just without the baggage of debt.

But founders and investors should take note: not all SAFEs are created equal. The original model was the pre-money SAFE, which calculated conversion percentages based on the valuation of the company before the SAFE itself was factored in. It was a simple approach that favored founders, but it introduced a lot of guesswork around final ownership stakes.

Then came the post-money SAFE. This version, now widely used, includes the SAFE’s own impact on the cap table. The result is clarity—investors know exactly what share of the company they’ll own upon conversion. But that clarity can come at a cost to founders, who may wake up post-Series A with more dilution than expected. Post-money SAFEs shift the dilution burden from investor to founder. It’s cleaner, yes—but also sharper.

Still, whether you’re a pre-money loyalist or a post-money pragmatist, the SAFE remains one of the simplest and most founder-accessible tools in the financing kit. It’s not perfect—some investors still see it as too soft, too vague—but for getting early dollars in the door quickly, it’s hard to beat.

THIS ARTICLE IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DO NOT CONSTITUTE LEGAL ADVICE. THIS ARTICLE IS PROVIDED WITHOUT ANY WARRANTY, EXPRESS OR IMPLIED, INCLUDING AS TO ITS LEGAL EFFECT AND COMPLETENESS. THE INFORMATION SHOULD BE USED AS A GUIDE AND MODIFIED TO MEET YOUR OWN INDIVIDUAL NEEDS AND THE LAWS OF YOUR STATE, BY INDEPENDENT COUNSEL YOU RETAIN. YOUR USE OF ANY INFORMATION CONTAINED IN THIS ARTICLE, IS AT YOUR OWN RISK. WE, OUR EMPLOYEES, CONTRACTORS, OR ATTORNEYS WHO PARTICIPATED IN PROVIDING THE INFORMATION CONTAINED HEREIN, EXPRESSLY DISCLAIM ANY WARRANTY, AND BY DOWNLOADING OR USING OR RELYING ON THIS ARTICLE; NO ATTORNEY-CLIENT RELATIONSHIPS ARE CREATED. DO NOT USE THIS ARTICLE WITHOUT AN INDEPENDENT LAWYER YOU HAVE SPECIFICALLY RETAINED FOR SUCH PURPOSE.

© 2024 Yair Udi – Law Offices. All rights reserved

When you’re in the early stages of your startup, raising capital can be a challenge. While convertible preferred stock is often the go-to for more established companies, many startups choose convertible promissory notes, or just “convertible notes,” when they need to raise smaller amounts of capital during the seed stage. Here’s why these notes are often the tool of choice for founders.

At their core, convertible notes are debt instruments, meaning they’re a form of borrowing with the expectation that they’ll convert into equity (i.e., shares in your company) later on. But in reality, many investors view them as a way to secure an early stake in the company, hoping for a smoother transition into equity without locking in an exact valuation too early.

Key Features of Convertible Notes

Let’s break down what makes convertible notes tick:

• Principal and Interest: Like any loan, there’s a principal amount (the amount borrowed) and interest that accrues over time.
• Conversion to Equity: The key feature of a convertible note is that it converts into equity (often preferred stock) when a certain event happens, like a future funding round.
• Seniority: As a debt instrument, convertible noteholders have priority over equity holders in case the company liquidates, meaning they get paid back before common stockholders do.

When Do Convertible Notes Convert?

Convertible notes don’t convert into equity right away. Instead, they wait for a “conversion event.” These are the most common scenarios that trigger conversion:

1. Next Equity Financing: This is the most common trigger for note conversion. Once your startup raises its next round of funding (like a Series A), the noteholders convert their debt into the same type of shares the new investors are getting.
2. Corporate Transaction (Exit): If your company gets sold while the notes are still in place, noteholders may either:
   • Get their principal and interest paid back,
   • Or convert the debt into equity at a discount to the price at which the acquirer is purchasing the shares.
3. Maturity Conversion: If no equity round or sale happens by the time the note matures, noteholders might have the option to:
   • Convert to equity (often common stock) at a predetermined price,
   • Or force the company to raise another round of financing.

The Conversion Price: How It Works

When the time comes for the note to convert into equity, noteholders typically get a discount on the price paid by the new investors. The rationale? They took a risk investing early, so they get rewarded with a better deal. This happens in two ways:

• Discount Rate: The most common way to calculate the price at which the note converts is by applying a discount to the next round’s price. For example, if the next round’s price is $1 per share, a 20% discount would mean the noteholders get their shares at $0.80 each.
• Valuation Cap: A valuation cap places a ceiling on the price at which the notes convert, no matter how high the startup’s valuation gets in the next round. This ensures that investors aren’t paying too much, even if the company’s value skyrockets before the next round of funding.

If the note has both a discount and a valuation cap, the noteholders will convert at the better deal for them (i.e., the lower price between the discount and the capped valuation).

Convertible Notes for Bridge Financing

Convertible notes aren’t just for seed-stage startups. More developed companies sometimes use them for bridge financing—basically, raising funds temporarily until they can secure a more substantial round of investment or sell the company. When used in this way, they’re sometimes called “bridge notes.”

Convertible notes are a flexible, founder-friendly way to raise early-stage capital without the pressure of immediately determining a company valuation. They allow investors to take a chance on your startup early, while still setting them up to participate in future rounds at a discounted rate. It’s a win-win if you’re just getting started and need some initial fuel for your business!

DISCLAIMER

This content is brought to you for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained on this website constitutes a solicitation, recommendation, endorsement, or offer by any person or any third party service provider to buy or sell any securities or other financial instruments in this or in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction.

THIS ARTICLE IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DO NOT CONSTITUTE LEGAL ADVICE. THIS ARTICLE IS PROVIDED WITHOUT ANY WARRANTY, EXPRESS OR IMPLIED, INCLUDING AS TO ITS LEGAL EFFECT AND COMPLETENESS. THE INFORMATION SHOULD BE USED AS A GUIDE AND MODIFIED TO MEET YOUR OWN INDIVIDUAL NEEDS AND THE LAWS OF YOUR STATE, BY INDEPENDENT COUNSEL YOU RETAIN. YOUR USE OF ANY INFORMATION CONTAINED IN THIS ARTICLE, IS AT YOUR OWN RISK. WE, OUR EMPLOYEES, CONTRACTORS, OR ATTORNEYS WHO PARTICIPATED IN PROVIDING THE INFORMATION CONTAINED HEREIN, EXPRESSLY DISCLAIM ANY WARRANTY, AND BY DOWNLOADING OR USING OR RELYING ON THIS ARTICLE; NO ATTORNEY-CLIENT RELATIONSHIPS ARE CREATED. DO NOT USE THIS ARTICLE WITHOUT AN INDEPENDENT LAWYER YOU HAVE SPECIFICALLY RETAINED FOR SUCH PURPOSE.

© 2024 Yair Udi – Law Offices. All rights reserved

Every startup journey has to start somewhere, and when it comes to funding, that usually means a seed round. This is the stage where you go out to your immediate circle—friends, family, early believers—to raise the first money that gets your idea off the whiteboard and into the world. When it’s mostly people close to the founders putting in small checks, it’s often called a “friends and family” round. But many startups actually go through several seed rounds before they’re ready for a full-blown Series A with institutional venture capital.

Seed rounds usually come toward the tail end of the idea stage, when the concept has been shaped into something tangible. At this point, founders are often still juggling full-time jobs while working nights and weekends on the startup (yes, moonlighting is a real thing). In the early days, they’re often bootstrapping—funding everything out of their own pockets or with a few small informal loans from friends.

With some luck and grit, that bootstrap money might be enough to build an early prototype (what’s often called an “alpha” version), or even a more polished version for limited testing (a “beta”). But more often than not, founders turn to seed capital to make a serious jump, usually so they can quit their day jobs and go full-time or hire someone with technical chops to help build a working product.

Seed financings come in all shapes and sizes, but here’s what many of them have in common:

• Size of the round: Anything from $50,000 to $4 million or more. If it’s on the smaller side, people often call it a “pre-seed.”
• Who’s investing: Family, friends, angel investors, or super-angels (those who invest full-time in early-stage companies and sometimes run mini-funds for their network to co-invest). Don’t be surprised if there’s no “lead investor” calling the shots—everyone might be writing smaller checks without dictating terms.
• What the company is issuing: Most seed rounds don’t involve traditional equity. Instead, startups typically raise money using:
  • Convertible notes,
  • SAFEs (Simple Agreements for Future Equity), or
  • Preferred shares (often a simplified version for early-stage use, and sometimes even common stock).

There’s no one-size-fits-all approach at this stage, and that’s okay. What matters most is getting the resources to keep building—and to keep going.

DISCLAIMER

This content is brought to you for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained on this website constitutes a solicitation, recommendation, endorsement, or offer by any person or any third party service provider to buy or sell any securities or other financial instruments in this or in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction.

THIS ARTICLE IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DO NOT CONSTITUTE LEGAL ADVICE. THIS ARTICLE IS PROVIDED WITHOUT ANY WARRANTY, EXPRESS OR IMPLIED, INCLUDING AS TO ITS LEGAL EFFECT AND COMPLETENESS. THE INFORMATION SHOULD BE USED AS A GUIDE AND MODIFIED TO MEET YOUR OWN INDIVIDUAL NEEDS AND THE LAWS OF YOUR STATE, BY INDEPENDENT COUNSEL YOU RETAIN. YOUR USE OF ANY INFORMATION CONTAINED IN THIS ARTICLE, IS AT YOUR OWN RISK. WE, OUR EMPLOYEES, CONTRACTORS, OR ATTORNEYS WHO PARTICIPATED IN PROVIDING THE INFORMATION CONTAINED HEREIN, EXPRESSLY DISCLAIM ANY WARRANTY, AND BY DOWNLOADING OR USING OR RELYING ON THIS ARTICLE; NO ATTORNEY-CLIENT RELATIONSHIPS ARE CREATED. DO NOT USE THIS ARTICLE WITHOUT AN INDEPENDENT LAWYER YOU HAVE SPECIFICALLY RETAINED FOR SUCH PURPOSE.

© 2024 Yair Udi – Law Offices. All rights reserved

As startup fundraising becomes more global, it’s not uncommon to have investors from outside the U.S. show up in your cap table. That’s great news—it means broader reach, more capital, and possibly some strategic international connections. But when foreign capital comes in, especially in sensitive tech sectors or businesses touching critical infrastructure, there’s a gatekeeper you should know about: CFIUS.

CFIUS—the Committee on Foreign Investment in the United States—is a U.S. government body that reviews certain deals involving foreign investors to make sure they don’t pose national security risks. If your company is working in an industry that could trigger that kind of scrutiny (like data, defense, AI, biotech, etc.), and you’re bringing on a non-U.S. investor, you may need to ask yourself: Is this a “covered transaction”?

If the answer is even a maybe, it’s worth getting advice. In some cases, companies voluntarily notify CFIUS to get ahead of any issues and secure a kind of legal safe harbor. That can protect your deal—and your company—from major headaches down the road.

Bottom line: global capital is powerful, but you should know when it comes with an extra layer of compliance. It’s not a blocker, just a box to check—smartly and early.

DISCLAIMER

This content is brought to you for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained on this website constitutes a solicitation, recommendation, endorsement, or offer by any person or any third party service provider to buy or sell any securities or other financial instruments in this or in in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction.

THIS ARTICLE IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DO NOT CONSTITUTE LEGAL ADVICE. THIS ARTICLE IS PROVIDED WITHOUT ANY WARRANTY, EXPRESS OR IMPLIED, INCLUDING AS TO ITS LEGAL EFFECT AND COMPLETENESS. THE INFORMATION SHOULD BE USED AS A GUIDE AND MODIFIED TO MEET YOUR OWN INDIVIDUAL NEEDS AND THE LAWS OF YOUR STATE, BY INDEPENDENT COUNSEL YOU RETAIN. YOUR USE OF ANY INFORMATION CONTAINED IN THIS ARTICLE, IS AT YOUR OWN RISK. WE, OUR EMPLOYEES, CONTRACTORS, OR ATTORNEYS WHO PARTICIPATED IN PROVIDING THE INFORMATION CONTAINED HEREIN, EXPRESSLY DISCLAIM ANY WARRANTY, AND BY DOWNLOADING OR USING OR RELYING ON THIS ARTICLE; NO ATTORNEY-CLIENT RELATIONSHIPS ARE CREATED. DO NOT USE THIS ARTICLE WITHOUT AN INDEPENDENT LAWYER YOU HAVE SPECIFICALLY RETAINED FOR SUCH PURPOSE.

© 2024 Yair Udi – Law Offices. All rights reserved

If you’ve been around the startup world long enough, you know that fundraising doesn’t follow a neat script. Sure, on paper, it looks like everyone raises a tidy Series Seed, then Series A, then B, C, D, and so on. But in reality? It’s rarely that clean. And the way you name your rounds? That’s part branding, part signaling, and part… whatever works.

Founders often get strategic with round names, especially when they’re thinking about how it might be perceived by the market. A new round labeled “Series B” might imply major traction, but what if it’s just a bridge? Or a top-up that doesn’t quite live up to a full-blown B? That’s when you’ll see names like “Series A-1” or “A-2” instead.

Take this common scenario: you raise a Series A, then raise two smaller follow-ons before you’re ready for a proper Series B. You might name them Series A-1 and Series A-2. Later on, maybe you raise a bigger round and call it Series B, followed by a C, and maybe a C-1 if another follow-on shows up. You get the idea. It might end up looking something like:
Pre-Seed → Seed → Series A → Series A-1 → Series A-2 → Series B → Series C → Series C-1 → Series D…

And that’s perfectly okay.

These names are mostly internal shorthand and external messaging. The truth is, round names don’t change your valuation, your cap table, or the terms on paper—but they can influence perception, especially when you’re talking to future investors or the press.

It’s also worth noting that what some call a “pre-seed” might look like a seed round to someone else, especially if it’s structured as a SAFE or convertible note. And some founders will label their first institutional equity round as “Series Seed” instead of “Series A” to reflect that it’s still early days.

So yes, this stuff is squishy. It’s part of the game. But the important thing is that you know what the structure and implications of the round really are—even if the name on the pitch deck gets a little creative.

And no matter what you call it, every round needs a solid term sheet. That’s where expectations get aligned, protections get baked in, and the real negotiating begins.

Need help making sense of your next round—or how to name it? We’ve got your back.

DISCLAIMER

This content is brought to you for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained on this website constitutes a solicitation, recommendation, endorsement, or offer by any person or any third party service provider to buy or sell any securities or other financial instruments in this or in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction.

THIS ARTICLE IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DO NOT CONSTITUTE LEGAL ADVICE. THIS ARTICLE IS PROVIDED WITHOUT ANY WARRANTY, EXPRESS OR IMPLIED, INCLUDING AS TO ITS LEGAL EFFECT AND COMPLETENESS. THE INFORMATION SHOULD BE USED AS A GUIDE AND MODIFIED TO MEET YOUR OWN INDIVIDUAL NEEDS AND THE LAWS OF YOUR STATE, BY INDEPENDENT COUNSEL YOU RETAIN. YOUR USE OF ANY INFORMATION CONTAINED IN THIS ARTICLE, IS AT YOUR OWN RISK. WE, OUR EMPLOYEES, CONTRACTORS, OR ATTORNEYS WHO PARTICIPATED IN PROVIDING THE INFORMATION CONTAINED HEREIN, EXPRESSLY DISCLAIM ANY WARRANTY, AND BY DOWNLOADING OR USING OR RELYING ON THIS ARTICLE; NO ATTORNEY-CLIENT RELATIONSHIPS ARE CREATED. DO NOT USE THIS ARTICLE WITHOUT AN INDEPENDENT LAWYER YOU HAVE SPECIFICALLY RETAINED FOR SUCH PURPOSE.

© 2024 Yair Udi – Law Offices. All rights reserved

When you’re building a startup, the way you raise money—and the tools you use to do it—should evolve alongside your company. What works for a napkin sketch won’t work for a Series A, and vice versa. That’s why understanding the typical growth path of a venture-backed startup helps you make smarter decisions about financing.

Of course, no startup journey is perfectly linear. It’s messy. Things change. Plans pivot. But most companies tend to move through a few common stages as they go from idea to (hopefully) exit. Here’s a breakdown of what that looks like and what kind of capital moves make sense at each point:

1. The Idea Stage
   Every startup begins the same way: with an idea. Founders start fleshing things out—mockups, wireframes, rough decks—anything to bring the idea to life and get some early feedback. You’re talking to friends, potential customers, and mentors. This is where the magic (and often confusion) begins.
2. Proof of Concept (aka MVP Time)
   Now comes the scrappy phase. You build a minimum viable product (MVP)—just enough to get it in front of users and test whether your idea actually resonates. It’s about learning fast and cheap. You’re validating assumptions, gathering feedback, and trying to avoid building the wrong thing. This is the part where you realize if you have a real product-market-fit (PMF).
3. Building for Real
   If the market signal is good, it’s time to build out the team and the product. You’ll probably raise a pre-seed or seed round to do this. The MVP becomes a real product. You bring in engineers, designers, maybe your first marketing or growth hire. The focus is on creating something users love and want more of.
4. Scaling Up
   Now that your product is working and your users are growing, the focus shifts to scale. You raise more capital—usually Series A or B—to grow your customer base, expand the team, and start capturing market share. Growth is king here. It’s about going bigger, faster, smarter.
5. Maturity (and Possibly an Exit)
   At some point, the growth curve flattens, and your priorities change. You’re thinking about profitability, longer-term sustainability, maybe preparing for an exit, whether that’s M&A or going public. But here’s the twist: plenty of startups get acquired (or even IPO) before they ever hit profitability. That’s especially true in venture-backed companies where growth often trumps short-term profits.

DISCLAIMER

This content is brought to you for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained on this website constitutes a solicitation, recommendation, endorsement, or offer by any person or any third party service provider to buy or sell any securities or other financial instruments in this or in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction.

THIS ARTICLE IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DO NOT CONSTITUTE LEGAL ADVICE. THIS ARTICLE IS PROVIDED WITHOUT ANY WARRANTY, EXPRESS OR IMPLIED, INCLUDING AS TO ITS LEGAL EFFECT AND COMPLETENESS. THE INFORMATION SHOULD BE USED AS A GUIDE AND MODIFIED TO MEET YOUR OWN INDIVIDUAL NEEDS AND THE LAWS OF YOUR STATE, BY INDEPENDENT COUNSEL YOU RETAIN. YOUR USE OF ANY INFORMATION CONTAINED IN THIS ARTICLE, IS AT YOUR OWN RISK. WE, OUR EMPLOYEES, CONTRACTORS, OR ATTORNEYS WHO PARTICIPATED IN PROVIDING THE INFORMATION CONTAINED HEREIN, EXPRESSLY DISCLAIM ANY WARRANTY, AND BY DOWNLOADING OR USING OR RELYING ON THIS ARTICLE; NO ATTORNEY-CLIENT RELATIONSHIPS ARE CREATED. DO NOT USE THIS ARTICLE WITHOUT AN INDEPENDENT LAWYER YOU HAVE SPECIFICALLY RETAINED FOR SUCH PURPOSE.

© 2024 Yair Udi – Law Offices. All rights reserved