Series A Financing

Series A Financing refers to a company’s initial major financing round. Series A financing usually involves significant due diligence conducted by investors. Investors in Series A rounds typically take shares of preferred stock. Preferred stock offers the investors priority in a financial waterfall applicable to major liquidity events such as a merger, acquisition or initial public offering. Series A investors also typically have the ability to appoint members of the board of directors. Series A investment can be protected through various restrictions on transfer and antidilution protections. For instance, in an Investors Rights Agreement a Series A investor may have a preemptive right allowing it to purchase any new issuances of securities and a right of first refusal requiring any transferor of securities to offer the securities to the investor prior to transferring to a third party. The date of the closing of Series A investment can be an inflection point in the life of a company. Angel and seed investments may receive a return on investment based on the size of a Series A round and S Corporations often forego S Corporation status to permit a new class of stock to be issued. Series B rounds, and later rounds, will often mirror the terms and documentation of the Series A round, and the Series A investors may look to increase their holdings in later rounds.