When your startup is executing a funding round, you'll encounter a number of critical legal documents. One of the most central is the Stock Purchase Agreement (SPA). Understanding its implications is crucial, especially for founders.
In this focused video, Phil Crowley, founder of Crowley Law LLC and a lawyer with deep experience in startup financing, explains what a Stock Purchase Agreement entails. It's fundamentally an agreement where an investor commits funds to your company in exchange for equity, typically in the form of common or preferred stock.
However, Phil issues a critical warning to founders: carefully scrutinize the Stock Purchase Agreement, and any accompanying investment documents, for terms that could restrict your freedom to operate and manage your company.
Key takeaways from this video:
Understanding the Stock Purchase Agreement: What it is and its
primary purpose.
The Hidden Dangers: How seemingly standard clauses can impose
significant limitations on founder autonomy and
decision-making.
A Common Pitfall: Phil highlights a frequent problem he sees where
young companies inadvertently give away too much authority and
control to early investors.
Impact on Growth: Such concessions can severely restrict a
company's agility and ability to grow effectively in the long
run.
Before you sign any investment agreement, it's vital to
understand not just the financial terms, but also the governance
and control rights you might be conceding. Protecting your ability
to lead your company strategically is paramount.
If you're a founder preparing for or currently navigating a funding round, this advice is essential.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
