Key Terms of a Series A Raise 

A Series A round is often the first major institutional financing in a startup’s lifecycle. The raise helps fuel scale—but, beyond the capital, it introduces new complexities: investor protections, corporate governance, and long-term ownership dynamics.

This guide outlines the core terms that should be understood before entering a Series A negotiation. These terms are not just legal jargon—they directly affect company control, dilution, and exit outcomes:

• Valuation and Price Per Share:
  • Fully Diluted Capitalization
    • The company’s outstanding “fully diluted” securities as of the anticipated investment. This number—and what is countable versus what is not—sets the critical baseline for all valuation matters and is a critical, if often overlooked, negotiation point.
  • Pre-Money Valuation
    • The company’s agreed-upon value before new money is invested. This number sets the basis for how much equity will be exchanged for capital.
  • Post-Money Valuation
    • The pre-money valuation plus the new capital raised. This number determines the investor’s ownership percentage after the round.
  • Price Per Share 
    • Calculated by dividing the pre-money valuation by the fully diluted number of shares outstanding. It determines how many shares an investor receives for their investment.
• Preferred Stock:
  • Series A investors typically receive preferred stock, which carries special rights compared to common stock (typically held by founders and employees).
  • These rights protect investors’ downside, give them certain controls, and influence economics in a liquidity event.

• Liquidation Preference:
  • Liquidation preference determines how proceeds are distributed upon certain events such as if the company is sold, merged, or liquidated.
• Anti-Dilution Protection: 
  • Protects investors if the company issues shares at a lower price in a future round. While there are a number of methodologies that may be employed, there are two key dilution calculation concepts: weighted average and full ratchet.
    • Weighted Average: Adjusts the investor’s conversion price based on the size and price of the down round - considered “market standard.”
    • Full Ratchet: Resets the conversion price to the new lower price, regardless of round size - rare and generally viewed as founder-unfriendly.
• Board Composition and Governance: 
  • A lead investor may request board representation as part of a Series A round. 
  • A typical post-Series A board might look like: 
    • One representative of the investors;  
    • One or more founders; and 
    • One independent director (mutually agreed upon). 
  • Investors also negotiate protective provisions—rights to approve or block certain company actions, such as issuing new stock, selling the company, or changing the size of the board. 

• Takeaway:

A Series A raise is more than a funding event—it’s a restructuring of the company’s ownership, governance, and future financing path. While many of the terms listed here are common, they are not set in stone. Understanding each provision, how it affects your company, and where there is room to negotiate is essential to protecting your vision and your long-term equity stake.

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