Raising venture capital: both sides of the cap table.

Most startup attorneys have only ever represented founders. We have also worked as investors — screening deals, reviewing cap tables, and watching what happens to founders who signed term sheets without understanding what they agreed to. That perspective changes the quality of the advice we give at every stage of a raise.

Raising venture capital is fundamentally a securities transaction governed by federal law, with compliance obligations that begin the moment you first solicit an investor. The exemptions that most startups rely on — Regulation D under the Securities Act of 1933 — carry conditions that are easy to violate accidentally and difficult to unwind after the fact. We structure raises to stay inside those exemptions from day one, so that a securities violation doesn't surface during your Series B due diligence or an acquisition.

Selling securities — which includes equity, SAFEs, convertible notes, and most instruments investors receive — requires either registration with the SEC or a valid exemption. Registration is impractical for startups; the exemptions are what make private fundraising possible. The two most commonly used:

• Reg. D, Rule 506(b) — the standard exemption for most seed and Series A rounds. Unlimited size from up to 35 non-accredited but "sophisticated" investors and unlimited accredited investors. No general solicitation. Investors receive restricted securities with a 6-to-12-month resale restriction under Rule 144.
• Reg. D, Rule 506(c) — permits general solicitation (public advertising, social media, demo-day pitches to open audiences), but all investors must be verified accredited — not self-certified. If you're raising publicly or using a platform that broadcasts your round, you're likely in 506(c) territory whether you know it or not.

Both exemptions require filing a Form D with the SEC within 15 days of the first sale of securities. Missing this filing is a violation — it does not invalidate the exemption in most cases, but it creates regulatory exposure and complicates future raises.

The choice of instrument affects valuation, dilution, investor rights, and how much leverage founders retain at the priced round. The three instruments used in almost every early-stage raise:

• SAFE (Simple Agreement for Future Equity): the Y Combinator standard, now in its post-money version. Not debt — no interest, no maturity, no right to demand repayment. Converts to equity at a future priced round, subject to a valuation cap and/or discount. Post-money SAFEs make dilution explicit, which is founder-friendly in theory but requires careful attention to the pro-rata rights most institutional investors will expect to negotiate.
• Convertible notes: debt instruments with interest and a maturity date, converting to equity at a discount at the next qualified financing. Unlike SAFEs, they create a repayment obligation if the company never raises a priced round — a risk that gets more serious as time passes. Most-favored-nation clauses in early notes can create unintended consequences when later investors receive better terms.
• Priced preferred stock (Series A and beyond): governed by a certificate-of-incorporation amendment under Delaware General Corporation Law ( 8 Del. C. § 151 et seq. ) establishing the rights, preferences, and privileges of the new series. NVCA model documents are the market standard; deviations from those forms are negotiated items that affect founder control and economics through every subsequent financing event.

The term sheet is not binding on most economic points, but it sets the negotiating posture for the full documents. The provisions that matter most:

• Liquidation preference. Determines how proceeds are distributed in a sale or wind-down before common stockholders receive anything. 1x non-participating is market standard at Series A. Participating preferred means investors get the preference and participate pro-rata — substantially reducing founder and employee proceeds in moderate-outcome exits.
• Anti-dilution protection. Broad-based weighted-average is market standard; full ratchet is heavily investor-favorable and should be resisted.
• Pro-rata rights. Major-investor pro-rata is standard and generally acceptable; pro-rata extended to every seed participant creates administrative burden and complicates future institutional rounds.
• Board composition. Typical Series A: two founders, one investor, two independents. Deviations — particularly investor-majority boards — warrant scrutiny of the protective provisions that accompany them.
• Protective provisions. Investor veto rights over specified company actions: issuing new stock, selling the company, taking on debt, amending the charter. Standard and appropriate for investors; the scope and threshold for triggering them is where negotiation matters.
• Founder vesting & acceleration. Single-trigger acceleration is rarely accepted by acquirers. Double-trigger (acquisition plus termination without cause) is more defensible and protects founders without creating a retention problem for the buyer.