Startup Funding: Selling Shares to Raise Funds

How and why startups use priced rounds to raise capital from investors.

When you’re running a startup company and looking to secure your next round of funding, you’ll eventually encounter the term “priced round.” If you’ve been raising capital through SAFEs or convertible notes, this is a major shift in how investors commit their money and in how you structure your company for growth.

Let’s break down what a priced round is, why it matters, and how the process works, so you can walk into your round prepared and confident.

What Is a Priced Round?

A priced round is when a startup sells preferred stock to investors at a fixed valuation. Unlike a SAFE or convertible note, where valuation is often delayed until later, a priced round sets the company’s value right now and sells shares based on that number.

For startup founders, this is a big milestone. It’s often the moment you move from quick, flexible funding options (e.g. SAFEs) to a structured deal with more investor rights, more legal paperwork, and a lot more negotiation.

The first priced round for a startup may be a Series Seed round or Series A round, depending on the company’s prior financing history and stage. Either way, it’s a signal to the market that your company has matured beyond the earliest stages of funding.

Why Do Startups Do a Priced Round?

Most early stage companies start with lower-cost, faster funding tools, like SAFEs, convertible notes, or founder-funded approaches, because they’re simple. But as your business grows and you start seeking larger checks (often $1-3 million or more), especially from venture capital firms, the expectations change.

Bigger investors usually want a priced round for a few reasons:

It locks in a valuation and sets clear ownership percentages.
It converts earlier SAFEs or notes into actual shares.
It gives investors negotiated rights and protections they don’t get with early-stage agreements.

In other words, a priced round is about structure, control, and signaling. It tells the world—and especially potential investors—that your startup venture is now a serious, investable business.

How the Process Works

From a founder’s perspective, a priced round is part negotiation, part legal marathon, and part investor relations sprint. Here’s how it typically unfolds.

1. Finding and Pitching Your Lead Investor

Long before any paperwork is signed, you’ve been meeting with investors - maybe venture capital funds, maybe strategic industry partners. You’ve pitched your products or services, explained your growth plan, and followed up with those who showed interest.

Eventually, one investor steps up to lead the round, often contributing at least half of the total raise. This lead investor will help shape the terms for everyone else.

2. Negotiating the Term Sheet

The term sheet is where the official legal process begins. While most of it isn’t legally binding, it lays out the big-ticket items: the valuation, any board seats the investors will get, and other critical terms.

Even though it’s “non-binding,” the reality is that once you sign it, you’re committing to move forward on those terms—changing them later is rare and frowned upon. So it is essential to negotiate the terms carefully prior to signing a term sheet.

3. Due Diligence and Legal Drafting

Once the term sheet is signed, two things happen at once:

Due diligence begins. The lead investor gives you a due diligence checklist - everything from your corporate formation documents to IP ownership records, major contracts, employee agreements, and more. You (and your legal counsel) gather these materials into a secure data room and deliver the info to the investor’s counsel.

Document drafting starts. Your company’s counsel prepares the NVCA model documents that will govern the investment, incorporating all agreed-upon terms. A pro forma cap table is also created, showing how ownership will look after the investment, including the conversion of SAFEs and any changes to your option pool.

4. Side Letters and Final Negotiations

Sometimes specific investors—especially large investors and strategic invesors—negotiate extra rights. These go into side letters that only apply to them. At the same time, the company and lead investor are reviewing and negotiating the main NVCA documents.

By the time the documents are “substantially final,” you’re nearly at the finish line.

5. Closing the Round

Finalized documents are sent to all participating investors. Signatures are collected but held in escrow until closing day. When that day comes, the money is wired, signatures are released, and the deal officially closes.

Your cap table is updated (often through an online cap table management platform like Carta or Pulley) and stock certificates are issued to the investors.

6. Post-Closing Obligations

The work doesn’t stop once the money’s in the bank. Priced rounds often come with ongoing obligations, such as:

Providing regular financial reports to investors
Maintaining certain types of insurance
Getting investor approval before taking specific actions, such as raising the next round

Why Priced Rounds Are More Expensive

Founders often ask why priced rounds cost so much compared to SAFEs or convertible notes. The short answer: complexity.

You’re dealing with:

Five or more detailed agreements (often over 100 pages)
Extensive diligence requests
Multiple negotiation points across investors

It’s a bigger lift for your legal team and for you.

The Core NVCA Documents You’ll See

Most priced rounds use the following set of standardized agreements developed by the National Venture Capital Association (NVCA):

Certificate of Incorporation (Charter) – Creates preferred stock and sets governance rules.
Stock Purchase Agreement (SPA) – The actual agreement to buy/sell the shares, including detailed representations and warranties made by the company.
Disclosure Schedule (attached to the SPA) – Lists contracts, IP, employees, and anything relevant to the representations and warranties made in the SPA.
Investors’ Rights Agreement – Grants rights such as access to financials and the ability to participate in future rounds among other things.
Voting Agreement – Sets board composition and certain voting rules.
Right of First Refusal and Co-Sale Agreement – Gives investors first dibs if founders want to sell shares.

The Big Picture for Founders

If you’re preparing for your first priced round, think of it as both a funding event and a structural milestone. It’s not just about getting capital - it’s about formalizing relationships with investors, clarifying ownership, and setting the tone for your business financing going forward.

Yes, it’s more expensive. Yes, it’s more work. But for startup founders ready to raise significant capital, a priced round is often the only way to bring in the venture capital for startups that fuels the next stage of growth.

Need guidance for your upcoming priced round? Get in touch with our team and we can talk about what that could look like.