Series A

What follows is the position as of July 2026, written for founders heading into their first institutional round; the moving parts are flagged where they need current verification.

Series A is where a Pakistani startup stops being a set of promises and becomes a structure. The investor is now an institution — a fund with an investment committee, counsel, and a document set it uses across markets — and the round's legal work is making that document set true inside a Pakistani private company. The economics are negotiated in the term sheet; whether they are real is decided in the articles, the register, and the filings.

What actually changes

At seed, the company sold ordinary shares or promises of them. At Series A, three shifts happen at once. The investor subscribes for a new class — preferred shares with a liquidation preference, anti-dilution protection, and conversion rights — which Pakistani law will honour only if the class is properly created. Governance becomes contractual: a board seat, reserved matters, information and inspection rights, transfer controls. And the company is audited in the broad sense: legal due diligence over everything it has signed, filed, and skipped since incorporation, with warranties to stand behind the answers.

Many domestic venture investors are themselves SECP-regulated, operating funds licensed under the SECP's private funds regime [PRIVATE FUND REGULATIONS 2015, CURRENT STATUS — TO BE VERIFIED BY REVIEWING LAWYER], which shapes their documentation and reporting demands; foreign funds bring their home-market forms and expect local counsel to make them work.

The economics, briefly and in rupees

Four term sheet items carry most of the money. The liquidation preference: 1x non-participating is the fair standard — the investor gets its money back or its as-converted share, not both; participating preferred double-dips and should be priced, not conceded. Anti-dilution: broad-based weighted average is the reasonable form; a full ratchet reprices the entire round off one bad day. The option pool top-up: investors routinely require the pool expanded before the money, in the pre-money, which means founders alone pay for it — understand that arithmetic before agreeing the headline valuation. And pro-rata rights, which are cheap now and shape who controls the next round.

Model all of it in rupees at three exit values before signing. A term sheet is mostly non-binding on economics, but exclusivity, confidentiality, and costs clauses bind, and the non-binding parts are sticky in practice: retrading a signed term sheet costs trust that the round then runs on.

Making preference shares real under the Companies Act, 2017

This is the distinctly Pakistani work of a Series A. The Companies Act, 2017 allows a company to have more than one kind or class of share, with rights set by its articles and the terms of issue, subject to applicable regulations [SCOPE OF PERMISSIBLE CLASSES AND RIGHTS — TO BE VERIFIED BY REVIEWING LAWYER]. Nothing about a US-style preferred stock certificate imports itself. The liquidation preference must be written into the class rights in the articles for a winding-up, and into the shareholders' agreement as a contractual waterfall for the far more likely exit by share sale. Automatic conversion on an IPO or qualified events needs express drafted mechanics, because no statutory automatic conversion exists. Redemption features should be treated with caution against the Act's restrictive approach to a company acquiring its own shares [RELEVANT PROVISIONS — TO BE VERIFIED BY REVIEWING LAWYER]. And every conversion price must clear the floor that shares are generally not issued below face value without meeting statutory conditions — a real constraint when a heavily discounted seed instrument converts.

The rule that keeps all of this honest: the articles and the shareholders' agreement must match. Investors' counsel will insist on amended and restated articles filed with the SECP; founders should want the same, because rights that live only in an unfiled contract are litigation, not structure.

The document set and the seed cleanup

A Pakistani Series A closes on a familiar stack: subscription agreement (price, warranties, conditions precedent), shareholders' agreement (board, reserved matters, transfers — right of first refusal, tag-along, drag-along — exit provisions, founder vesting), amended articles, disclosure letter, board and members' resolutions, pre-emption waivers, and the SECP filings after allotment. Stamp duty applies under the provincial stamp regimes; pay it.

Alongside the new money, the round converts the old. Every SAFE and note on foot becomes shares in this closing, through the same section 83 machinery as the new issue. Sequence matters: conversions are usually completed or documented immediately before the new subscription so the investor prices against a final fully diluted table. Founders should run the conversion arithmetic — caps, discounts, MFN chains, the pool top-up — before the term sheet, not after, because it is the founders' own dilution that the interactions compound.

Diligence, warranties, disclosure

Institutional diligence in Pakistan concentrates where records are weakest: the reconciliation of the cap table to the register of members and SECP filings; corporate authority for every past issue; IP assignments including pre-incorporation work; stamped, signed material contracts; tax filings and withholding statements; employment and EOBI compliance; and the banking trail of every prior investment. Warranties then allocate the risk of what diligence missed. Negotiate their perimeter — company-level rather than personal where possible, knowledge-qualified, capped, and time-limited — and treat the disclosure letter as the founders' principal protection: a risk disclosed is a risk priced, not a claim waiting.

The regulatory overlay

Three regulators sit over the closing. The SECP receives the members' resolutions, the altered articles, and the return of allotment, each within its statutory window [CURRENT PERIODS — TO BE VERIFIED BY REVIEWING LAWYER]. The State Bank of Pakistan governs the foreign money: the subscription arrives through banking channels, and the issue to each non-resident is reported through the authorised dealer under the Foreign Exchange Regulation Act, 1947 and the Foreign Exchange Manual — the record on which the fund's eventual exit repatriation depends. And the Competition Commission of Pakistan can be engaged where the acquisition of shares or control crosses the Competition Act, 2010 merger thresholds; most Series A rounds fall below them, but the screen is quick and skipping it is not worth the exit-stage discovery. On tax, the round itself is capital, but the Income Tax Ordinance, 2001 follows the participants — withholding obligations where any secondary purchase of existing shares accompanies the round [ADVANCE TAX ON PRIVATE COMPANY SHARE ACQUISITIONS — TO BE VERIFIED BY REVIEWING LAWYER], and eventual capital gains treatment on exit.

Sequencing the round

A realistic order of march: readiness cleanup before the term sheet; term sheet with exclusivity; three to six weeks of diligence run in parallel with first-draft documents; negotiation to signing; conditions precedent — typically the corporate approvals, conversions, key contracts, and any regulatory items; remittance against closing; allotment, register, filings, certificates; then the post-closing rhythm of board meetings and information rights the company has just promised. Founders control more of this timeline than they think, because the slowest path in most Pakistani Series A rounds is not the investor — it is the company's own history being repaired under exclusivity pressure. Repair it first.