SUB CATEGORIES OF Funding Your Startup

Series AA Preferred Stock Financing Documents

The Series AA financing documents were created to facilitate the angel funding process for startups, including reducing their legal costs. The documents were publicly published as open source documents by Y Combinator and Wilson Sonsini Goodrich & Rosati (or WSGR). The terms are intended to be neutral enough to discourage modifications and we believe the authors have succeeded in that regard. However, because WSGR represents companies more often than investors, the documents are unquestionably more startup favorable than the NVCA documents. For startups, this is clearly great. For investors, it is not and those who write the checks tend to make the rules.

In our opinion, compared to the Series Seed documents published by Fenwick & West, the Series AA documents are more robust and closer to typical Series A financing documents. As such, the Series AA documents will be easier and cheaper to revise for Series A than the Series Seed documents. In practice, the Series Seed documents are discarded in connection with a startup’s Series A. As such, it is not clear why a startup would not simply choose convertible notes vs. Series Seed.

If a startup’s pre-money valuation is above $5 million or a startup is raising over $2 million, the startup should consider the NVCA documents rather than Series AA. The Series AA are best suited for true angel/seed deals, which are typically up to $1.5 million of capital raised at valuations below $5 million. Many angel investors expect NVCA level documents in exchange for their investment, in which case, as mentioned above, those who write the checks tend to make the rules.

The name “Series AA” does not have any legal mean per se. The name is simply a way to distinguish the forms from the Series A Preferred Stock forms. The documents could be called “Series A-1,” “Series Angel” or any other name not prohibited by Delaware law. In other words, the startup can choose what to call the security. In fact, the security could be called “Series A Preferred Stock.”

Comparison Chart

Below is an excellent summary prepared by attorneys from Perkins Coie LLP that describes the differences between Series AA, Series Seed and the NVCA Series A documents.