nickgallick SKILL 72: Fundraising Legal Compliance
Purpose
Raise money legally at every stage — from friends and family through Series A. Know what filings are required, what you can and cannot say, and Iowa-specific requirements.
Friends & Family ($50K–$250K) — SAFEs
Legal Structure
- Reg D, Rule 506(b): unlimited raise from accredited investors + up to 35 sophisticated non-accredited investors
- No general solicitation: cannot advertise the round publicly, tweet "we're raising," email strangers
- Instrument: SAFE (Simple Agreement for Future Equity) — Y Combinator standard (free at ycombinator.com/documents)
- Post-money SAFE: defines ownership at conversion more clearly than pre-money
- Valuation cap: maximum valuation at which SAFE converts to equity (e.g., $5M cap = SAFE converts at $5M valuation regardless of actual round price)
- Discount: percentage discount to next round price (typically 20%)
- MFN clause: if a better SAFE is issued later, earlier investors get the same terms
Required Filings
| Filing | Agency | Deadline | Cost |
|---|---|---|---|
| Form D | SEC (EDGAR) | Within 15 days of first sale | Free |
| Form D Notice | Iowa Insurance Division (Securities Bureau) | Concurrent with SEC filing | $0–$500 depending on amount |
| Blue sky filings | Each state where non-accredited investors reside | Before or concurrent with sales | Varies by state |
Iowa Specific (Iowa Code Chapter 502)
- Iowa Uniform Securities Act: Iowa securities law applies to Iowa residents
- Iowa Insurance Division: accepts federal Form D as notice filing; no separate Iowa registration required for Reg D 506(b)
- Iowa Crowdfunding Act (§502.202B): intrastate alternative
- Iowa-based company can raise up to $1M from Iowa residents
- Investors invest up to $5,000 each (or 10% of income/net worth, whichever is greater)
- File notice with Iowa Insurance Division
- Useful for community-based fundraise from Iowa supporters
Investor Documents Package
- Completed SAFE agreement (signed by both parties)
- Investor questionnaire (confirms accredited status)
- Pitch deck (if provided — must not contain false statements or unsubstantiated claims)
- Company summary/executive summary
Seed Round ($500K–$2M)
Additional Considerations
- Convertible notes (alternative to SAFE): debt instrument, 5% interest, 18–24 month maturity, 20% discount, valuation cap
- Difference from SAFE: convertible notes are debt; SAFEs are equity-like instruments
- SAFEs preferred for simplicity; convertible notes useful when investors want debt protections
- Lead investor: one investor negotiates terms, others follow on same terms
- Due diligence trigger: investors will request corporate documents, cap table, IP assignments, financial projections, regulatory analysis
- Pre-raise legal housekeeping: entity formed, all IP assigned, agreements signed, cap table clean — do this BEFORE investor conversations
Form D Amendment
- If raising multiple tranches: amend Form D for each material update (new investors, amount changes)
Series A ($2M–$10M)
Structure
- Priced round: company formally valued; investors buy preferred stock at set price per share
- Term sheet: non-binding summary (valuation, board seats, liquidation preference, anti-dilution, pro-rata rights)
- Preferred stock rights: liquidation preference, anti-dilution, information rights, protective provisions, board seat(s)
Key Terms to Negotiate
- Liquidation preference: 1x non-participating is standard (investors get money back first OR convert to common — not both)
- Anti-dilution: broad-based weighted average is standard (better for founder than ratchet-based)
- Board seats: 2 founders + 1 investor at Series A. Do NOT give majority to investors in Series A.
- Pro-rata rights: right to participate in future rounds to maintain ownership. Limit this.
- Legal fee cap: company pays investor legal fees, capped at $25–50K. Negotiate hard on this.
Closing Timeline
- Term sheet → signed: 1 week
- Due diligence: 2–4 weeks
- Definitive documents: 2–3 weeks
- Closing: 4–8 weeks total from term sheet
Crypto-Specific Fundraising
SAFT (Simple Agreement for Future Tokens)
- Investor buys right to receive tokens at Token Generation Event (TGE)
- The SAFT itself IS a security (investment contract under Howey)
- Sell only to accredited investors under Reg D 506(b)
- Requires: legal opinion that the eventual token is not a security (or will be registered)
- a16z alternative: SAFE + token warrant (separate documents for equity and token rights)
Token Warrant
- Right to purchase tokens at future date at specified price
- Typically attached to equity SAFE/round as additional sweetener for early investors
- Specify: token allocation, pricing method, vesting schedule, lockup period (12–24 months post-TGE typical)
Standard Token Allocation
| Category | % | Vesting |
|---|---|---|
| Team/founders | 15–20% | 4-year, 1-year cliff |
| Investors | 15–25% | 12–24 month lockup, monthly vest after |
| Community/ecosystem | 25–40% | Airdrops, rewards, grants |
| Treasury | 15–25% | DAO-governed |
| Advisors | 2–5% | 2-year vesting |
Accredited Investor Verification
- 506(b): self-certification is sufficient (investor checks a box confirming accredited status)
- 506(c): requires third-party verification (VerifyInvestor, attorney letter, CPA letter)
- Income test: $200K individual / $300K joint for prior 2 years, expected to continue
- Net worth test: $1M+ excluding primary residence
- Professional license: Series 7, 65, or 82
This is legal research and intelligence, not legal advice. Consult qualified legal counsel before taking action.