Series A Financing - What to Expect

Many founders think of fundraising as a single event. We like to think of a Series A financing as a series of tightly linked actions that unfold quickly, once you’ve received a term sheet. Each one has legal, strategic, and operational implications. Here are some of the key events and shifts you can expect.

1. SAFE & Convertible Note Conversion

If you’ve previously raised funding using SAFEs or convertible notes, now’s the time they convert, usually into preferred shares. This event can significantly reshape your cap table. Amongst others, founders will ( with the support of legal counsel) need to (a) identify all outstanding SAFEs/notes, (b) calculate conversion caps and discounts, and (c) ensure investors receive accurate share classes.

2. Pro-Rata Rights May Be Exercised

Some of your early investors will have pro-rata rights, which give them the option to maintain their ownership percentage. Expect emails asking how they can “top up” their stake in this round. While it’s great to see continued belief in your startup, this can make allocation trickier, especially when negotiating with your Series A lead.

3. Legal Due Diligence Gets Real

This is the part where everything comes under a microscope. Venture capital investors would expect to review your IP assignments, your key contracts, compliance status, corporate & tax filings. If you’ve been running loose, this is when the cleanup happens.

What investors want: a company that’s been responsibly built, with clean documentation and no intractable legal liabilities.

4. Some SAFE Holders May Want to Exit

Occasionally, early backers want to cash out. While this is understandable, most Series A investors prefer that early shareholders stay in the game or wait until a Series B exit. This is often a delicate conversation, often requiring legal guidance to (a) manage expectation, (b) negotiate secondary sales, (b) ensure proper shareholder approvals (c) align with your new investors’ expectations

5. The Delaware Flip

If you’re a Nigerian startup or operating in any emerging market, you would most likely be required to flip into a Delaware C-Corp now. The big challenge we see here is founders and initial counsel assuming that a Delaware flip is merely a transfer of shares. 90% of the flips we review were done incorrectly, thereby creating problems around undoing certain corporate actions and delaying closing.

6. Board Formation & Governance

Series A often introduces your first formal board of directors. That means (a) Regular board meetings, (b) Formal approvals for key decisions, ( c) New decision-making protocol. Founders can expect that certain actions (like taking on debt, hiring/firing executives, issuing new shares, and pivoting) will now require board consent.

7. Financial Oversight Increases

Different venture capital investors have different levels of comfort but expect some form of financial governance. We’ve seen venture capital investors request (a) quarterly reporting obligations, (b) pre-approval of major expenditures, ( c) appointment of a CFO, and (d) signatory rights on company accounts. The scope and nature of the financial oversight will often depend on risk perception.

8. Dilution Hits Home

Series A financing is often the first time founders feel the full effect of share dilution from stacking multiple SAFEs. Between the ESOP expansion, SAFE conversions, and new preferred shares, you may find yourself holding a much smaller slice of a bigger pie. The key is to understand (a) your post-money valuation, (b) how much of the company you still control ( c) whether and to what extent your voting rights are protected.

9. Re-Vesting Requests

Even if you’re fully vested, your new investors may ask you to re-vest your shares as a show of long-term commitment. This isn’t always adversarial, as the focus is often about aligning incentives. But it’s critical that the vesting schedule, acceleration clauses, and founder agreements are clearly negotiated and documented.

10. Shareholder Agreements Get Upgraded

Your initial shareholder/founder agreements will no longer suffice. At Series A, new agreements come into play, reflecting the diversity of your new stakeholders. These would typically include (a) Voting agreements, (b) Investor rights agreements, ( c) ROFR Agreements, and (d) Stock Purchase Agreements.  

For questions and clarifications, please reach out to your usual Balogun Harold contact or via bhlegalsupport@balogunharold.com