X Does Not Always Equal X

By Seed Rounds

I’ve done quite a few recent seed deals using various ‘standard’ seed financing docs (Series Seed, TechStars Series AA, etc.). While using these document sets can help reduce transaction costs and the time to close, a startup can run into trouble by trusting deal documents without verification.

For example, a startup requested I review a set of financing documents produced by investor counsel. The deal documents called the preferred stock “Series Seed” shares but after opening up the documents I quickly realized the deal terms were NOT the same as those in the well-known Series Seed document set. For example, the well-known Series Seed has a 1x non-participating liquidation preference, while the version I reviewed had a 1x participating preference. Ultimately, the deal document set was nothing like the well-known Series Seed set.

This confused my client, as he thought the deal was being done using the well-known Series Seed document set. However, provisions and deal terms can be different from standard sets even though a class of stock is called “Series Seed” or “Series AA” in your deal documents.

Therefore, if you think your deal is closing with a set of standard documents, you should at least run a compare document tool to see what, if any, deviations were made to the applicable standard document set. They might not be the standard set at all.


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