Venture round

A venture round is a type of funding round used for venture capital financing, by which startup companies obtain investment, generally from venture capitalists and other institutional investors. The availability of venture funding is among the primary stimuli for the development of new companies and technologies.



Stages in a venture round

  • Stock purchase agreements — the primary contract by which investors exchange money for newly minted shares of preferred stock
  • Buy-sell agreements, co-sale agreements, right of first refusal, etc. — agreements by which company founders and other owners of common stock agree to limit their individual ability to sell their shares in favor of the new investors
  • Investor rights agreements — covenants the company makes to the new investors, generally include promises with respect to board seats, negative covenants not to obtain additional financing, sell the company, or make other specified business and financial decisions without the investors' approval, and positive covenants such as inspection rights and promises to provide ongoing financial disclosures
  • Amended and restated articles of incorporation — formalize issues like authorization and classes of shares and certain investor protections
  • Conversion of convertible notes. If there are outstanding notes they may convert at or after closing.
  • securities filing with relevant state and/or federal regulators
  • Filing of amended Articles of Incorporation
  • Preparation of closing binder — contains documentation of entire transaction

Rights and privileges

Venture investors obtain special privileges that are not granted to holders of common stock. These are embodied in the various transaction documents. Common rights include:

  • Anti-dilution protection — if the company ever sells a significant amount of stock at a price lower than the investor paid, then to protect investors against stock dilution they are issued additional shares (usually by changing the "conversion ratio" used to calculate their liquidation preference).
  • Guaranteed board seats
  • Positive and negative covenants by the company
  • Registration right — the investors have special rights to demand registration of their stock on public exchanges, and to participate in an initial public offering and subsequent public offerings
  • Representations and warranties as to the state of the company
  • Liquidation preferences — in any liquidation event such as a merger or acquisition, the investors get their money back, often with interest and/or at a multiple, before common stock is paid any funds from liquidation. The preference may be "participating", in which case the investors get their preference and their proportionate share of the surplus, or "non-participating" in which case the preference is a floor.
  • Dividends — dividend amounts are usually stated but not mandatory on the part of the company, except that the investors will get their dividends before any dividends may be declared for common stock. Most venture-backed start-ups are initially unprofitable so dividends are rarely paid. Unpaid dividends are generally forgiven but they may be accumulated and are added to the liquidation preference.

Round names

"Series B" and "Series C" redirect here. For the earlier series Irish banknotes, see Series B Banknotes. For the latter, see Series C Banknotes.

Venture capital financing rounds typically have names relating to the class of stock being sold:

See also

This article is issued from Wikipedia - version of the 10/10/2016. The text is available under the Creative Commons Attribution/Share Alike but additional terms may apply for the media files.