1. U.C. San Diego STARTUPS & PIZZA:
Sourcing Funding for NewCo
February 15, 2018

2. The Startup Lifecycle Idea Proof of Concept Building Scaling
Maturity and Exit
Financing Naming Conventions

3. Seed Financings General Characteristics Amount raised Investors
Instruments
Convertible notes;
Simple agreements for future equity (SAFEs); or
Seed equity, usually in the form of convertible preferred stock (but occassionally using common stock)

4. Seed Financings Types of Seed Investors Friends and Family Angels
Super-Angels

5. Seed Financings Types of Seed Financing Instruments Convertible Notes
General
Conversion Events
Next Equity Financing Conversion
Corporate Transaction Conversion
Maturity Conversion
Conversion Price
Discount Rate
Valuation Cap

6. Seed Financings
Types of Seed Financing Instruments (continued)
SAFEs

7. Seed Financings Types of Seed Financing Instruments (continued)
Convertible Preferred Stock
For instance, Series Seed financing documents often do not include some or all of the following terms:
Registration rights
Rights of first refusal and co-sale
Price-based anti-dilution provisions
Drag-along rights
Investor designees on the board of directors

8. Seed Financings Types of Seed Financing Instruments (continued)
Common Stock
Common stock is the simplest form of equity investment
Vote for the company's board of directors and on other stockholder matters
Receive dividends, if and when declared by the board
Receive their proportional share of the company's remaining assets if the company is liquidated

9. Seed Financings Choosing the Right Seed Instrument Considerations
Investor Sophistication
Investor Preference
Cost vs. Amount Raised
Time
Market Cycle

10. Seed Financings Choosing the Right Seed Instrument (continued)
Pros and Cons of the Instruments
Convertible Notes
Pros
Familiarity
Simplicity
Cost
Equity Incentives
Cons
Uncertainty
Maturity and Interest
Unintended Outcomes
Excessively Low Valuation Caps

11. Seed Financings Choosing the Right Seed Instrument (continued)
Pros and Cons of the Instruments
SAFEs
Pros
Simplicity
No Maturity or Interest
Similarity to Convertible Notes
Equity Incentives
Cons
Unfamiliarity
Uncertainty
Unintended Outcomes
Tax Treatment

12. Seed Financings Choosing the Right Seed Instrument (continued)
Pros and Cons of the Instruments
Convertible Preferred Stock
Pros
Certainty for Investors
Certainty for Founders
Simplicity for Next Financing
Familiarity
Cons
Complex Documents
Cost
Equity Incentives

13. Seed Financings Choosing the Right Seed Instrument (continued)
Pros and Cons of the Instruments
Common Stock
Pros
Simplicity
Cost
Equality
Cons
Equity Incentives