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The Legal Aspects Of Early Stage Startup Fundraising


Fundraising is one of the first steps in launching a new company. While the idea of fundraising is exciting, the legal side can feel intimidating. Today our goal is to simplify the legal aspects of early fundraising so you can get back to perfecting your pitch!

Written in partnership with business attorney Leslee Cohen at AllRise Legal Counsel.


Types of investors for early-stage businesses

Early-stage startups often raise their first round of capital from their personal networks, or from angel investors. One advantage to a “friends and family” round of funding is that the founders typically have more control over the terms of the offering. On the other hand, angel investors may be better strategic partners for the business and are more familiar with the convertible securities commonly sold by early stage companies to investors (see below). Also, when there are fewer investors putting in more money, companies may be able to avoid filing a Form D with the Securities and Exchange Commission (more on that below as well). 

Finally, angel investors are usually “accredited investors,” meaning they meet certain income and net worth thresholds. The securities laws require extra disclosure to be provided to investors who are not accredited and the courts are more protective of them, so losing money on the investment is riskier for the founders.

After the “angel” or “seed” round of capital, companies often look for financing in larger amounts from venture capital firms, who invest in preferred stock as opposed to convertible securities.

Types of securities sold by early-stage business

  • Convertible Instruments

It can be extremely difficult to value an early-stage company, and accordingly, determine how much stock in the entity should be sold for a given dollar amount. As a result, founders often turn to either convertible notes or simple agreements for future equity (“SAFEs”). 

Convertible notes allow the company to issue a promise to repay the amount of the investment after some period of time. However, if the company raises a “priced round” of equity (meaning shares of stock at a set valuation) or is sold prior to the maturity date of the note, the note converts into the right to buy into that next round or sell in the sale transaction at a discount to the price paid by the next round investor or by the buyer, respectively. Some investors also require that a valuation cap be added to protect them if the next round investment is at a substantially higher valuation.

Convertible notes come in many different forms with various terms, which means negotiation and legal fees. In addition, founders commonly are not able to secure a priced round or sale of the company prior to the maturity date, leading to disgruntled investors and more negotiation.  

Enter the SAFE. A SAFE is an agreement that the investment will convert to the right to participate in the next round of financing or sale at the applicable discount and/or cap but is not an agreement that the founders will repay the investment to the investor. It is also a form that can be found on with the only negotiable terms being the discount and/or cap, which means less negotiation and lower legal fees. For that reason it has become the most common security sold by early stage companies.

  • Preferred Stock.  

Venture capital funds typically invest at the point that the company is able to determine a valuation. They purchase either Series Seed Preferred shares or Series A Preferred shares (and then Series B, C and so on). 

These shares give the investors preference above other investors on repayment as well as other rights. Series Seed Preferred stock purchase documents can be found on These shares have less rights than Series A Preferred shares, including no anti-dilution protection for investors in the event that the company has to raise money in the future in a “down round,” which can be very common while companies negotiate with potential investors or buyers in the future. 

Preferred shares also give investors approval rights over certain actions taken by the company, seats on the board of directors, information rights, registration rights and others.

Documentation required 

The securities laws require that any potential investor be told anything and everything that a “reasonable” person would want to know in deciding whether or not to invest in a company. For that reason, business attorney Leslee Cohen recommends that the convertible note or SAFE be accompanied by a subscription agreement containing representations from the investor such as that the investor has had the opportunity to ask all of its questions about the investment, that it realizes that this is an early stage company and, thus, the investor may lose its entire investment amount, that the investor has consulted with its own tax and financial advisors and more. 

Attached to the subscription agreement are a description of the company, its founders, its business and cap table and the rights of investors and, most importantly, a set of risk factors detailing anything that could foreseeably go wrong with the company. 

The online Series Seed purchase agreements are more thorough but we usually add a set of risk factors to them. Series A documents are more set in accordance with forms provided by the National Venture Capital Association but are often subject to intense negotiation.

Fundraising considerations for immigrant founders

Non-U.S. citizen founders who have raised funding for their startups often qualify for the O-1A work visa. 

How can early fundraising set you up for success with an O-1 visa?

The O-1A visa is for professionals at the top of their field. U.S. Citizenship and Immigration Services (USCIS) determines who is at the top of their field with eight Extraordinary Ability criteria. If you meet three or more of these criteria, you qualify for an O-1 visa. 

One criterion is the Awards criterion. To meet this criterion, you need to receive an award that is (1) nationally or internationally recognized, and (2) the award must be offered to you for your “excellence” in your field. There are many ways that founders can satisfy this criterion, but one of the most common ways is through receiving venture capital funding. 

Other types of funding—such as family and friends investments and angel investments—tend not to satisfy the O-1 Awards criterion the way venture capital does. With this in mind, raising VC rather than other types of funding tends to be a strategic choice for immigrants. 

While raising VC does not automatically qualify you for the O-1 visa, it does put you one foot closer to the visa. Founders also tend to meet other O-1 criteria, such as the Critical Employment criterion, Published Materials criterion, Original Contributions criterion, and Membership criterion.

If you are exploring the O-1 visa, check out Legalpad’s guide on how to meet each criteria. 

Frequently asked questions about fundraising as an immigrant entrepreneur


  • Can I raise funding in the U.S. if I’m not a U.S. citizen?

Yes. Anyone can raise funding from U.S. investors regardless of their nationality. 

  • Can I found a company while working on a visa at another U.S. employer? Can I raise funds for that company?

Yes, and yes. You can start a business and begin raising money for it even while you are employed at another company. 

There are other aspects of running a company that you cannot be involved with in the U.S. without work authorization. For example, you cannot be paid by your startup or become an employee without a work visa or other forms of legal work authorization. 

  • I’m not in the U.S., but I want to be physically present for my next funding round. What visa options are available for me?

Many founders travel to the U.S. on a B visitor visa or ESTA (also referred to as the visa waiver program) to raise funding. However, you cannot work on the B visa and ESTA. 

If you’d like to become an employee of your startup, you’ll need a nonimmigrant work visa like an H-1B, O-1A, TN, or L-1 visa. Review each U.S. work visa to determine which is best for you, or book a free consultation with our team. 

Additional legal resources for entrepreneurs 

About the author:

Annie Blay

Content Marketing Specialist

Before joining the marketing team, Annie helped over 60 Legalpad clients navigate U.S. immigration on the client services team.