Stock Purchase Agreement (SPA): The Core Deal Document That Governs Startup Fundraising Transactions

When startups raise a priced equity financing - often at the seed or Series A stage - the Stock Purchase Agreement (SPA) becomes the central contract that governs the investment. While the term sheet and cap table often draw founder attention, the SPA is the legally binding document that finalizes the deal.

It’s more than a simple record of funds exchanged. The SPA sets out the who, what, and how of the transaction, creating the framework for investor rights and company obligations.

What Does the Stock Purchase Agreement Cover?

Transaction Mechanics

• Number and type of shares purchased
  
• Purchase price per share
  
• Total investment amount
  

Conditions to Closing

• Representations and warranties from both company and investors
  
• Closing deliverables (e.g., executed documents, board approvals)
  
• Compliance with applicable laws and consents
  

Use of Proceeds

• Often includes language about how the funds will be deployed
  
• May reference growth milestones or specific business needs

Key Legal Provisions

Representations and Warranties

• From the company: corporate authority, capitalization, litigation, intellectual property, compliance
  
• From investors: investment intent, accreditation, authority to invest
  

Covenants and Indemnification

• May include post-closing obligations
  
• Includes indemnity provisions for breach of reps/warranties
  

Closing Mechanics

• Details when and how funds and shares are exchanged
  
• May allow for multiple closings or tranches

Considerations for Founders

Accuracy of Cap Table and Reps

• Misstatements can trigger indemnification obligations
  
• Full disclosure is critical

Negotiation Leverage

• Earlier stage deals often use founder-friendly SPA templates
  
• Later-stage or institutional rounds may have investor counsel drive the drafting

Alignment With Other Deal Documents

• SPA must coordinate with the Investor Rights Agreement, Voting Agreement, and ROFR/Co-Sale Agreement

Final Thoughts

The SPA may not have the flash of a term sheet, but it’s the legally binding foundation of any priced round. Understanding its components helps founders spot hidden risks and ensures smoother closings.

Need a review of your Stock Purchase Agreement before signing? We help founders decode deal language and ensure the terms reflect what was actually agreed.