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Overview

The Series Seed Preferred Stock Investment Agreement is the master contract that governs the investment transaction. It binds the Company, Purchasers (investors), and Key Holders (founders) to specific terms, representations, and covenants.
This is a legally binding definitive agreement, unlike the term sheet which is primarily non-binding. All parties should review carefully with legal counsel before execution.

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Document Information

Source: Cooley LLP Series Seed (v3.2)
Format: Available in .md
Structure: Main agreement with Exhibits (definitions, terms, certificate, schedules)

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Document Structure

The agreement consists of:
  1. Main Agreement: Core investment terms
  2. Exhibit A: Definitions
  3. Exhibit B: Detailed agreement terms
  4. Exhibit C: Restated Certificate of Incorporation
  5. Exhibit D: Disclosure Schedule (if any)
  6. Schedule 1: Purchasers and Key Holders

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Key Components

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Investment Terms

Basic Transaction:
  • Each Purchaser purchases Series Seed Preferred Stock
  • Company sells and issues shares at Purchase Price
  • Number of shares specified on Schedule 1 for each Purchaser
Payment Methods:
  • Cash
  • Cancellation or conversion of indebtedness
  • Conversion of other convertible securities (e.g., SAFEs)
  • Any combination thereof
Discounts may apply where purchase price is paid by canceling or converting existing indebtedness or convertible securities.
Initial Closing: Takes place on Agreement Date when:
  • Purchasers execute signature pages
  • Purchasers deliver aggregate Purchase Price
  • Company delivers stock certificates (if required)
Additional Closings: Within 90 days of Initial Closing:
  • Company may sell additional shares
  • To New Purchasers at same Purchase Price
  • Up to Total Shares Authorized for Sale
  • Without consent of initial Purchasers
Remote Closing: Exchange of documents and signatures may occur electronically

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Representations and Warranties

The agreement includes extensive reps and warranties from both the Company and Purchasers:
The Company represents and warrants regarding:Organization and Authority:
  • Duly organized and validly existing
  • Has corporate power to execute agreement
  • Agreement is valid and binding
Capitalization:
  • Authorized shares (common and preferred)
  • Issued and outstanding shares
  • Option pool size and allocations
  • Key Holder shares and vesting schedules
  • No other outstanding rights to purchase securities
Example Cap Table Definitions:
  • Common Shares Issued and Outstanding Pre-Money: 8,000,000
  • Total Post-Money Shares Reserved for Option Pool: 2,500,000
  • Number of Issued And Outstanding Options: 1,500,000
  • Unallocated Post-Money Option Pool Shares: 1,000,000
Valid Issuance:
  • Shares will be duly authorized and validly issued
  • Fully paid and nonassessable
  • Free of restrictions (except agreement and securities laws)
  • Compliance with federal and state securities laws
Litigation: No pending or threatened litigationIntellectual Property:
  • Company owns or has rights to all necessary IP
  • No infringement of third-party IP rights
  • No outstanding licenses or encumbrances
Employee/Consultant Matters:
  • All employees/consultants have signed IP assignment agreements
  • No conflicting obligations
  • Section 83(b) elections filed for unvested stock
Compliance:
  • Not in violation of charter, bylaws, or material agreements
  • No defaults that would result from this transaction
Title to Property: Owns properties free and clear of liens (except routine)Material Agreements: Listed on disclosure schedule if they:
  • Involve obligations/payments over $25,000
  • License IP (excluding standard software)
  • Grant manufacturing/distribution rights
  • Include indemnification for IP infringement
Liabilities: No liabilities over 25,000individuallyor25,000 individually or 100,000 in aggregateNo Bad Actors: No disqualifying events under Rule 506(d)
Breach of representations and warranties can give Purchasers grounds to unwind the transaction or seek indemnification, so Companies should ensure all reps are accurate.
Each Purchaser represents and warrants:Authorization: Full power to enter into agreementInvestment Intent:
  • Purchasing for own account, not for resale
  • No present intention to distribute
  • Not formed solely to acquire these securities
Disclosure: Has opportunity to discuss business with managementRestricted Securities:
  • Understands shares are not registered
  • Must hold indefinitely unless registered or exemption available
  • Company has no obligation to register
No Public Market: No assurance public market will developLegends: Shares will bear restrictive legendsAccredited and Sophisticated:
  • Is accredited investor under Rule 501(a)
  • Has knowledge and experience to evaluate investment
  • Can bear economic risk
No General Solicitation: No broker involved in general solicitationExculpation: Not relying on other PurchasersResidence: State of residence identified on Schedule 1No Bad Actor Designees: Board designees not subject to disqualification events

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Company Covenants

Major Purchasers receive:
  1. Annual Financial Statements:
    • Unaudited balance sheet, income statement, cash flow statement
    • Prepared per GAAP
    • Audited if available
  2. Quarterly Financial Statements:
    • Same as annual
    • Subject to year-end adjustments
    • Except Q4
  3. Inspection Rights:
    • Visit and inspect properties
    • Examine books and records
    • Discuss affairs with officers
    • At reasonable times
Exceptions:
  • No access to trade secrets
  • No rights for competitors
  • Recipients must maintain confidentiality
Major Purchaser status depends on dollar threshold specified in definitions (commonly 25,000to25,000 to 100,000).
If the Company’s Next Financing includes:
  • More favorable rights/preferences (e.g., price-based anti-dilution)
  • Other contractual terms (e.g., registration rights)
Then Series Seed holders receive substantially equivalent rights (with appropriate adjustments).Implementation:
  • Purchasers must execute Next Financing Documents
  • Company pays up to $5,000 in legal fees for one counsel
  • Major Purchaser status carries forward
Automatic Amendment: When holders of majority of Series Seed execute Next Financing Documents, this Agreement is amended and restated into those documents.
Company must:
  1. Obtain right of first refusal on transfers by Key Holders
  2. Maintain this right
  3. If Company doesn’t exercise, assign right to Major Purchasers
Major Purchasers can then purchase on pro rata basis based on their Series Seed holdings.
Company must reserve and keep available sufficient Common Stock for conversion of all authorized Series Seed shares.

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Transfer Restrictions

Holders of Securities cannot sell unless:
  1. Registered: Effective registration statement under Securities Act, OR
  2. Exemption: Opinion of counsel that exemption available
Exceptions (no registration/opinion required):
  • Transfers complying with Rule 144 or Rule 144A
  • Transfers by entities to partners/members/stockholders
  • Transfers to affiliated entities
  • Transfers to retired partners/members
  • Gifts or transfers by will/intestacy to family/trusts
Condition: Transferees must agree to be bound by this Agreement
For up to 180 days following the Company’s IPO:
  • Stockholders agree not to sell or transfer Securities
  • Not to enter into arrangements transferring economic consequences
  • Must enter into underwriter lock-up agreement
Condition: Officers, directors, and 1% stockholders must be similarly boundEnforcement: Underwriters are third-party beneficiaries and can enforce
Company may impose stop transfer instructions during lock-up period.
If a Deemed Liquidation Event is approved by:
  1. Holders of majority of Common Stock (other than Series Seed)
  2. Holders of majority of Series Seed Common equivalent
  3. The Board
Then ALL Stockholders must:
  • Vote in favor of the transaction
  • Execute all related documentation
  • Deliver share certificates
  • Take all actions to complete transaction
Exception: Does not apply if acquirer is affiliate or 10%+ stockholder
Stockholders need not comply unless:Limited Representations:
  • Only regarding authority, ownership, and title
  • No liability for others’ representations (except shared escrow)
Several Liability:
  • Not joint liability with others
  • Pro rata to consideration received
  • Limited to consideration received (except fraud)
Equal Treatment:
  • Same form of consideration per share of same class/series
  • Same amount per share within class/series
  • Allocation per liquidation preferences in Restated Certificate

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Participation Rights

When Company proposes to issue New Securities:
  1. Notice: Provide Major Purchasers with written notice
  2. Offering Period: At least 15 days to respond
  3. Pro Rata Share: Based on percentage of fully-diluted capitalization
  4. Oversubscription: If others don’t fully participate
Formula:
Pro Rata Percentage = (Purchaser's shares on as-converted basis) /
                      (Total fully-diluted shares)
Exceptions (no participation rights):
  • Employee/consultant/director option grants
  • Securities issued in merger/acquisition
  • Securities issued to banks/equipment lessors
  • Securities in public offering
  • Securities in Next Financing (separate rights apply)
Termination: Rights terminate upon IPO or if holder no longer Major Purchaser

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Board Composition

Board consists of specified number of members elected by:Common Stock Representatives:
  • Elected by Common Control Holders (Key Holders providing services)
  • Number specified in definitions
Series Seed Representatives (if applicable):
  • Elected by holders of majority of Series Seed
  • Number specified in definitions
Mutual Consent Representatives (if applicable):
  • Elected by Common and Series Seed voting together
  • Number specified in definitions
Removal and Replacement:
  • Only by class that elected the director
  • Vacancies filled by same class
Board structure is negotiated in term sheet and specified in Exhibit A definitions.

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General Provisions

Purchaser Counsel: Company reimburses specified amount (commonly $10,000)Amendment Costs: Company pays up to $5,000 for counsel in Next FinancingOther Expenses: Each party bears own expenses
Agreement may be amended with written consent of:
  • Company, AND
  • Purchasers holding majority of Series Seed
Exception: Amendments adversely affecting specific Purchaser require that Purchaser’s consent
Governed by laws of Delaware (typically), without regard to conflict of laws principles

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Completing the Agreement

Key items to specify in Exhibit A (Definitions):

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Overview Definitions

  • Agreement Date
  • Company name
  • Dispute Resolution Jurisdiction
  • State of Incorporation
  • Stock Plan name

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Board Composition

  • Common Board Member Count
  • Series Seed Board Member Count
  • Mutual Consent Board Member Count

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Economic Terms

  • Major Purchaser Dollar Threshold
  • Purchase Price per share
  • Total Series Seed Investment Amount
  • Unallocated Post-Money Option Pool Percent
  • Purchaser Counsel Reimbursement Amount

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Cap Table

  • Common Shares Issued and Outstanding Pre-Money
  • Total Post-Money Shares Reserved for Option Pool
  • Number of Issued And Outstanding Options
  • Unallocated Post-Money Option Pool Shares

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Schedule 1 Information

For Each Purchaser:
  • Name
  • Address
  • Email
  • Number of Series Seed shares purchased
  • Payment method (cash, debt conversion, etc.)
  • Total purchase amount
For Each Key Holder:
  • Name
  • Address
  • Email
  • Number of Common Stock shares held

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Best Practices

The Disclosure Schedule (Exhibit D) should list any exceptions to the Company representations. Failing to disclose known issues can constitute fraud and void the transaction.
  1. Complete due diligence before signing
  2. Verify all numbers in cap table definitions
  3. Review vesting schedules for accuracy
  4. List all material agreements on disclosure schedule
  5. Ensure all Key Holders are listed on Schedule 1
  6. Coordinate timing with Board and Stockholder Consents
  7. Keep executed copy for corporate records

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Additional Resources

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