A Straightforward Primer on the NVCA Series A Preferred Stock Purchase Agreement
Raising a Series A round can be both exciting and challenging. At its core, the Series A Preferred Stock Purchase Agreement (“PSPA”) outlines how investors will purchase ownership in your company. The National Venture Capital Association (NVCA) provides a widely recognized template for this document. While it might seem dense, understanding it can help founders and investors build a better deal with fewer surprises. You can find the word document of the PSPA here: NVCA-Model-Document-Stock-Purchase-Agreement
What Is the PSPA?
The PSPA is the contract between your startup (the “Company”) and the people or entities buying your Series A Preferred Shares (the “Purchasers”). It focuses on:
- Purchase Price & Number of Shares: How many Preferred Shares the investors are buying and at what price.
- Closing Date & Conditions: When the sale officially happens and which requirements must be met first.
- Representations & Warranties: Statements that both the Company and the Purchasers make about themselves and the deal.
Key Elements to Note
- Certificate of Incorporation (Exhibit B): The essential “playbook” for Preferred Shares—outlining liquidation preferences, voting rights, and other key protections. The PSPA references the “Restated Certificate,” which must be filed with the state before closing.
- Use of Proceeds: States how the company intends to use the money (e.g., product development, growth, or general operations). This section is often negotiated to ensure investors feel confident about their funding’s purpose.
- Additional Closings: Allows the Company to sell more shares down the road, on similar terms, to new or existing investors.
- Disclosure Schedules (Exhibit C): Where the Company discloses details about intellectual property, lawsuits, financials, and any other “exceptions” to its representations. If something isn’t spelled out here, it could become a future liability.
- Conditions to Closing: Lists what must happen before investors wire funds (e.g., updated bylaws, legal opinions, or certificate filings).
Why Representations & Warranties Matter
In the Representations & Warranties section, both sides declare factual truths. For founders, the company’s reps and warranties cover topics like organizational standing, capitalization table accuracy, IP ownership, pending litigation, tax compliance, and more. These statements help investors gauge risk. If any rep turns out to be false, the Company could face serious repercussions, including potential lawsuits.
Ancillary Agreements
Beyond the PSPA itself, other agreements accompany your Series A. These include:
- Investors’ Rights Agreement (IRA): Lays out registration rights, information rights, and sometimes additional governance provisions.
- Right of First Refusal and Co-Sale Agreement (ROFR): Restricts the transfer of founder and early-stockholder shares, giving the Company or other investors the right to purchase before shares are sold to outsiders.
- Voting Agreement: Outlines how board seats are allocated and ensures major actions (like selling the company) have the necessary approval.
Looking at the Big Picture
While the PSPA might look like a maze of legal jargon, remember it’s standard for serious investors to rely on detailed paperwork. The goal is clarity and fair protections on both sides. Here are some practical tips:
- Read Everything Carefully: Don’t assume it’s “standard” and skip reading. Terms vary, and details matter.
- Seek Expertise: Engage experienced legal counsel to help you understand obligations, compliance requirements, and negotiation points.
- Plan Ahead: Representations & warranties often require thorough due diligence. Start collecting your documents early, such as IP assignments and corporate records.
- Understand Future Implications: The PSPA references your company’s future needs—like potential Additional Closings, board composition, or founder vesting. Ensure everything aligns with your long-term strategy.
Conclusion
The NVCA’s standard Series A Preferred Stock Purchase Agreement is designed to streamline venture financing. While it’s comprehensive, it isn’t cookie-cutter. Every deal is unique, and each section can be tailored to meet specific goals and risk tolerances. Think of the PSPA not just as a one-time document, but as a guiding framework that will influence how you operate—and how you collaborate with your investors—for years to come.
Disclaimer: This primer is intended for informational purposes only and does not constitute legal advice. For specific questions about your financing round or the PSPA, consult a qualified attorney.
