What is Series A Convertible Preferred Stock Funding and Financing in a Venture Capital Investment?
Andy Lau has substantial experience representing pe/vc funds, investment banks and startup and growth companies in pe/vc investments, M&A, IPO and capital markets transactions. For a preliminary consultation, please email him at andy@askventure.com.
What is Venture Capital?
Venture capitalists provide venture capital to startup, high growth companies usually with a prospect of achieving an IPO within a number of years (e.g., 3-5 years). Venture capitalists generally invest in the form of funds that are privately held limited partnerships (LP).
What is a Venture Capital Fund?
A venture capital fund is a substantial pooled investment. It may consist of institutional investors such as pensions funds, endowment funds, insurance companies, foundations and corporations. Wealthy individuals may also participate in a venture capital fund. In a Series A financing, it is not unusual for a venture capitalist to invest into a company with capital from more than one fund.
What is a Series A round or Series A financing?
A Series A round or Series A financing refers to the first round of venture capital or private equity investment where certain investors (e.g., private equity funds and/or individuals) invest in a company by injecting capital and the company issues certain (convertible preferred) shares (known as Series A shares) to the investors in return.
The second round of financing is called Series B financing, and the third round is called Series C financing, and so on.
What are Series A convertible preferred shares?
Series A – Shares issued in a Series A financing are called Series A shares. Similarly, shares issued in a Series B financing are called Series B shares, and so on.
Convertible – Convertible shares are preferred shares that can be converted into common shares. Upon an IPO of the company, the preferred shares will be converted into common shares (subject to any lock-up period), which the preferred shareholders may sell to the general public on the stock exchange. Huge profits can be gained in this move.
Preferred – Preferred stock gives preferred shareholders certain rights and privileges over common shareholders. Such rights include liquidation preference, preemptive rights, right of first refusal, tag-along rights, drag-along rights, registration rights, etc.
Related posts:
- From Seed Capital to Angel Investors to Venture Capital Funding – Startup Company Financing Model
- How to Calculate Liquidation Preference of Preferred Stock in a Venture Capital Financing?
- Pre-money, Post-money Valuation and Calculation in a Venture Capital Investment
- Sample liquidation preference clause in a typical venture capital term sheet
- Calculate pre-money valuation of startup company seeking venture capital funding
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