2023 guide to

startup funding

Expert insights and strategies

What’s inside

The UK fundraising landscape in 2023 3

SeedLegals makes fundraising easier 6

Ways to fund your startup 8

How equity financing works 18

How to do a funding round: step-by-step guide 23

Get investment ready 23
Agree the terms 28
Close the deal 31

Agile funding strategies - raise outside a round 34

Bridge between rounds - extend your runway 40
Replace a round - raise as you go 40
Hack your round - drive up your valuation 41

Talk to the funding experts 43

Jargon buster 44

Read more from our experts 47

The UK funding landscape in 2023 3

The UK funding landscape in 2023

2022 brought a stark shift to the funding landscape in the UK. Investors pulled
back from riskier deals and founders were forced to settle for raising at more
‘investor-friendly’ valuations. 


According to data from Beauhurst’s annual report on UK equity investments,

The Deal 2022, the amount invested into UK startups and scaleups dropped by
16% in 2022 compared to 2021.


The number of first-time raises (eg, pre-seed or seed) announced in 2022 fell
13% from 2021, while only one in three equity rounds totalled less than £500K, as
investors shied away from the smaller ticket sizes that come with younger, riskier
companies. 


We spoke to Yana Abramova from Pretiosum Ventures, an early-stage venture

capital fund focusing on Web2/Web3 infrastructure companies, about how the
VC approach to risk has changed and what it means for startup funding in 2023. 

2022 has been a sobering experience for tech investors and startups. Public
markets and, as a result, private investment rounds suffered heavy discounts. I
expect 2023 to see an upswing, not a total recovery. Good companies will start
to see a bit more aggressive valuations, but funding at large will still be
dedicated to protecting existing assets.



Yana Abramova, 

Founder and Managing Partner at Pretiosum Ventures

So, will founders looking for funding be in for a rough ride in 2023? Ultimately, the
trends we’re seeing are context, not a foregone conclusion. If you can convince
an investor that your company is worth the risk, you’ll find a way to fund your
project. 
The UK funding landscape in 2023 4

In 2021, the startup investment market skewed heavily towards founders.

Valuations climbed higher and higher fuelled by cheap investor capital. It was a
great time, but a market correction was probably due.


We came back down to earth in 2022 and the riskier startups found it tough to
raise, but startups with strong fundamentals and routes to profitability thrived.
For the rest of 2023, high interest rates and wider uncertainty will influence
decision making and investors will likely still favour safer bets. 


An interesting factor this year will also be the amount of dry powder currently
held by VCs that will need to be deployed soon. Many VCs tightened up their
cheque book in 2022, but their funds need to be invested sooner or later to
generate a return. Expect some of that money to make its way back into the
market over this coming year, especially as we approach winter 2023 going into
2024. 



Jonny Seaman, 

Investor Partnerships Manager, SeedLegals

In 2023, it’s more important than ever to focus on the fundamentals: prove
potential through strong signs of traction, underscore your credibility by showing
how prepared you and your company are for growth, and demonstrate you can
reach, or at least have a path to reach, the breakeven mark.


In an uncertain economic environment, you’ll need to be ready to take

investment quickly, and not let a funding round roll on for months. Our agile
funding methods are designed to help you raise as and when you need to,
without giving away more equity than necessary. To see how it works, skip
straight to the section on agile funding.

The UK funding landscape in 2023 5

Funding rounds took longer to close in 2022


Agile funding became increasingly popular

Days taken to close traditional deals Companies using agile methods

125 600

Number of companies using agile funding

Average time taken to close (days)

100
500

75

400

50

25 300
2021 - Q4 2022 - Q1 2022- Q2 2021 - Q3 2021 - Q4
SeedLegals makes fundraising easier 6

SeedLegals makes fundraising easier

With SeedLegals, founders can create the standardised legal documents

needed for a funding round quickly and easily - and for a tiny fraction of the price
of a lawyer. Plus, you get unlimited access to our specialist teams. 


Automate the standard stuff - lean on an expert for the complex questions 


With over 35,000 startups and 25,000 investors using our platform, we have an
unique view into the deals that are actually happening right now in the UK (and
beyond). We’re in a position to let you know what’s market standard and what’s
unconventional, unfair or unwise.


We’re the startup powering UK startups. With SeedLegals, it’s easy to:

 Generate funding round documents

 Send, sign, store your legals securely online

Manage your cap table automatically

Create team agreements, including employee contracts, NDAs and

handbooks

Make more informed decisions using our insights and expertise

Set up an option scheme to hire and retain employees after your

funding round

Get back the money you’ve raised, then spent, with R&D Tax Credits

All this and more + specialist, unlimited support

SeedLegals makes fundraising easier 7

We’re more than a platform - we’re a community 


Join us at a webinar or event and get involved in our vibrant network of

founders, investors and aspiring entrepreneurs. We partner with experts from
across the startup ecosystem to answer your questions. 


And if there’s something you want to learn more about right now, head over to
SeedLegals resources. 



Or if you want to speak to one of our specialists, book a free call. 

Ways to fund your startup

8

Ways to fund your startup

Sooner or later, your business is going to need more cash than you can
personally provide.


Before you get to the point where you’re actually making revenue, you’ll probably
need to invest in

Market research - understand how you’ll hit that all-important product

market fit

Hiring - build a core team to fill any skill gap

Prototype development - get a minimum viable product (MVP) out 


to market


Marketing - find early customers or users and build traction

Building your business without external funding is called

Bootstrapping. It’s when a founder only uses their own resources like
personal savings or money from friends and family to power their
business. It’s tough-going, and of course not every founder will be in a
position to do it for long. But the upside is that you can focus all your
available time and energy on your company, rather than negotiating
with investors, and you don’t have to take on debt or sell any equity.
Ways to fund your startup 9

We’ve listed the most common sources of early-stage UK funding below.

Equity financing

This is usually what people think of when they’re talking about startup funding.
It’s when the company sells a percentage of ownership (through shares) to
investors to raise capital. 


Investors invest in startups when they see the potential for significant financial
returns.  By taking an equity stake in a startup, investors also have the
opportunity to influence the company's direction. Different investors will have
different expectations of their investment and their involvement, which we’ll
discuss in more detail later.

From 



Friends and family, co-founders, equity crowdfunding, incubators and

accelerators, angel investors, venture capital funds (VCs)

Pro

Don’t need to pay the money bac

Build relationships with people who can help with your business, and have an
interest in your success


Con

Have to give up some ownership of the company, will have to share decision-
making powe

With every equity raise, you dilute your ownership furthe

Your investors might have high expectations of fast returns



Get your Term Sheet out early to equity investors. This will help
you take control of the negotiations and manage how much
control you give away to an external party.

Ways to fund your startup 10

Debt financing 

Another common route is to take out a business loan, either from an investor or a
financial institution, that you pay back with interest. Debt financing allows
companies to finance startup costs without giving away equity in the company.
You can also use a combination of debt and equity financing. A small loan when
you’re just starting out can be manageable and helpful, but taking on large
amounts of debt generally isn’t a good position to put yourself in.


From



High street banks and specialist business banks like British Business Bank,
Swoop, Tide 

Pro

Don’t lose any equit

You get the money you need upfront, without tying yourself to investors’
expectations


Con

Have to pay back the funds, plus interes

Can make you less attractive to equity investors, because some of their
investment will go towards paying off your debt, not growing the company



As a SeedLegals member, you can get exclusive offers and

discounts from our partners, including Swoop and Tide. 

Find out more about our perks.

Ways to fund your startup 11

Crowdfunding

With crowdfunding, you can raise money directly from your target market - by
pre-selling your product before you create it, or incentivising backers through
rewards or equity.


From 



Crowdfunding platforms such as Indiegogo, Kickstarter, Crowdcube and Seedrs 

Pro

Build brand recognition and customer loyalty before launch


Raise small amounts from a lot of people - you don’t have to convince one
person to part with thousands


Con

Not suited to every type of product or service - you’re unlikely to get much of
a marketing buzz with a B2B or deep tech compan

Can be time-intensive to manage

On some platforms, you need to raise through investors first before you can
go live

Expensive platform fees cut into your raise



Ways to fund your startup 12

Government grants 

The ideal scenario - if you can secure it - because government grants can be a
source of non-dilutive funds that you don’t have to pay back. The UK has several
generous grant schemes designed to help startups and SMEs grow.


From



Schemes and funds such as Innovate UK, The New Enterprise Allowance,
Prince’s Trust Enterprise Programme 

Pro

It’s free money - you don’t need to pay it back or sell equit

Prestigious - builds credibility in your secto

Don’t give away ownership


Con

Competitive to get - requires time-intensive, bureaucratic application

Restrictions on how you spend the mone

Unlikely to sustain you for long - you’ll still have to find other sources of fund

Eats into your overall SEIS/EIS allowance



Ways to fund your startup 13

Deeper dive into sources of equity financing

In this guide, we’re focusing on equity financing. Let’s take a closer look at the
various sources of equity financing.


Friends and family 



If you’re fortunate enough to have someone in your social circle with deep
pockets, and/or a lot of faith in you, you might have found your first investor.
While many transactions of this nature are loans on friendly terms, some in your
circle might be willing to invest their cash in return for a small percentage of
equity. 


Startup capital from friends and family is the least formal type of funding you can
get. But it’s still important that it’s taken and managed with the correct legal
documentation.

Pro

All being well, this is a low-stress way to take in fund

Can be quick to arrange, giving you access to funds soone

Your friends and family share in your company’s success


Con

Mixing business and money with personal relationships can become

complicate

If the investment isn’t correctly managed, the greater flexibility in the

agreement could hurt either the investor or your company


Ways to fund your startup 14

Accelerators and incubators 

These are structured courses designed to hothouse promising businesses. The

exact deal varies, but in essence here’s how it works: in return for an equity stake
in your business, they’ll provide you with cash and/or other resources, such as
office space and mentorship.


At the end of the programme, you’ll have the opportunity to present your startup
to VCs and angel investors at a demo day. Even if that doesn’t launch you to the
next funding stage, it can be good to get your face and name in front of influential
investors who might be interested in coming aboard further down the line.

Pro

Structured mentorship and skill buildin

A source of help when you’re still in the pre-product stage, without much to
show other investor

Access to demo days to get in front of investors


Con

Have to operate to a fixed timetable


Competitiv

Many require a relatively high equity share



Ways to fund your startup 15

Angel investors

Angel investors are private investors who provide money for startups and SMEs
to grow. They could be wealthy people passionate about supporting startups,
ordinary professionals looking for somewhere to invest their money and even
friends and family.


You can work with individual angel investors or angel groups, where multiple
angel investors come together as a syndicate to co-invest in companies. You can
meet angel investors at networking events and via LinkedIn, and search for angel
groups and apply online.

Pro

More likely to invest in early stages than VC

They invest their personal money so their interests are aligned with yours on
making your company a succes

You may be able to tap into their network for further investment or
mentorship


Con

Investment amounts are typically smaller than VC

You’ll probably need to show some early traction to catch their interest


Ways to fund your startup 16

Venture capital funds 

Venture capital firms manage funds to finance business ventures. These funds
are made up of pooled money from wealthy private investors, financial
institutions and investment banks.


Many startups aspire to get VC funding because these firms can invest the large
amounts of money that growing businesses need. On top of that, VC firms can
offer plenty of extra support in the form of expertise and strong networks.


The main goal of a VC firm is to get a good return on their investment, which is
usually 10 to 50x the amount of money they invest initially. VCs want to see an
exit strategy so they can be assured you plan to sell the company within five to
seven years, so they can pocket their big return.

Pro

Large cheque size

Access to industry and operational expertise

Prestige - credibility with other investors and future hire

Likely to continue to invest in further rounds, if all goes well


Con

Expectations of a fast and high return, which you might find restrictiv

Often want more of a say in how the company runs, compared to other
investor

Expect substantial traction and often revenue before investing



 Ways to fund your startup 17

Rely on your
own resources
Bootstrapping

Don’t lose equity

‘Free money’ you Don’t lose equity

don’t pay back
Government
grants
Competitive and Only available to
applications take a long time certain industries

Don’t lose equity

Can make you

Debt less attractive to
financing investors
Have to pay back with
interest

Raise directly from

your target market
Ways to raise Crowdfunding
Build buzz for
startup capital your brand

Pre-sell your product, Better suited for

offer perks or equity consumer goods

Accelerators & A source of funds in

incubators the pre-product stage

Access to mentorship
and other resources

Demo day in front of

investors
Smaller cheque sizes
in general
Willing to invest
Angel investors earlier than VCs
Usually expect early
traction
Access to their network
Equity and sector experiance
financing
Expectations of a fast and
high return, which affects
your growth and exit plan
Large cheque sizes
Often contingent on
Venture capital
Industry and active role in the
operational expertise company decision
making
Suitable for more
established startups with
MVP, signs of traction

Inspired by this infographic by Yana Abramova, Founder and Managing Partner at Pretiosum Ventures

How equity financing works 18

How equity financing works

There are various conventions that have grown up around the process of equity
financing - and it’s helpful to speak the same language as your investors.



Startup funding works in ‘priced’ rounds 


Startups typically raise money through a series of formal funding rounds,

corresponding to the company’s development stage and with a set target raise
amount.  As the company grows and requires more capital to fund further
growth, it progresses from pre-seed to seed to series A, B and so on.


During the round, the startup and investor agree on a company valuation, which
sets the share price. The number of shares the investor gets depends on the
amount they invest.


For an investor, a lower valuation is more cost-effective; they can own more
equity for a lower buy-in. But, as a founder you want to be able to sell less equity
at a higher value.


It can be very difficult for founders to know what valuation they should suggest
when in talks with investors. If you’re established enough to be making money,
you can use a multiple of your revenue. But - as is often the case with early-stage
startups - if you’re not yet generating revenue, your valuation will be built on more
abstract factors, like total addressable market (TAM) and projected market
share capture.



How equity financing works 19

Average early-stage valuation by

product development phase

£5M

£4M

£3M

£2M

£1M

Idea Product build Launch Traction Revenue

Progress of product development

Each funding round typically only gives the startup enough capital to get to the
next stage, where it then raises further capital for growth at a higher valuation or
prioritises profitability.

Equity dilution

Every time you create new shares, the % ownership represented by
each individual share goes down. This ‘dilutes’ the value of the shares
you and your investors hold over time - and saps the power of your
ownership stake. 


Equity financing is a trade-off between capital and company control.

That’s why it’s so important that you issue new equity at a fair
valuation and that new investors align with your company's mission
and values.

How equity financing works 20

How much money should you aim to raise?


The amount you raise will depend on your business’s needs and how much you
can convince an investor to part with, which varies hugely by sector.

It might be tempting to take in as much money as you can, while you can. But it is
possible to raise too much money. More money comes with more expectations
from investors - and you could commit yourself to unrealistic goals that you can’t
meet. 


The risk is that you raise too much at an inflated valuation, miss key goals, and
subsequently have to raise your next round at a lower valuation. This is called a
down round, and it sends a terrible signal to potential investors - as well as
hurting your existing investors.


So, to benchmark how much money to raise, you’ll need to balance the following
factors

The specific goals you want to hit - how much will you need to hit ambitious
yet realistic milestones, like number of customers, revenue generated etc

The runway you want - how long do you want the money to last you before
raising again

How much equity do you want to sell? 

How equity financing works 21

The best times of year to fundraise


Choosing the right time to fundraise can save a round from rolling on for months. 

Our data suggests that there are clear peaks in the year for closing rounds.


Spike before year-end and

VC firms tend to operate winter holidays

according to the calendar year Q1 is the most successful

for planning and reporting 

 quarter for opening and

closing rounds
For angel investors, the
financial year-end (April) is an
important deadline to maximise
SEIS/EIS tax relief

5 April - 

Spike after summer End of the tax year
holidays and before the
end of Q3

Spike before summer

holidays
Slightly more activity than usual

Significant uptick in activity

The busiest periods for closing rounds

Starting funding stages 

On the next page, we’ve mapped out the stages of formal funding rounds. The
different rounds correspond to the development stage the company is at, not
whether they’re raising for the first, third or fifth time, so there’s no need to go
through the full sequence.


In theory, you can keep going indefinitely through the alphabet. But in practice,
Series C is often the last round where companies negotiate for external funding.

 
How equity financing works 22

Round Summary Example goals for funding Average raise

range

Pre-seed Founders often Create minimum viable £100K - £500K

bootstrap this stage. product (MVP
This capital provides Conduct market researc
the foundation on which Hire core team
the company can grow. Register IP
Early
stage Seed Used to develop an Carry out research and
Pre-seed
MVP and get it to development
market. 

Build out core tea
Continue product
In your pitch, you’ll need developmen
to demonstrate why Begin product testin
your idea has the Develop go-to-market
potential to hit product strategy and launch product
market fit.

Series A Companies are usually Refine product developmen £2M - £10M

generating revenue by Increase market shar
now, often approaching Develop new products/
£1M.

service
Acquire more customers
This stage is all about Continue hirin
scaling the company Expand internationally
and building on initial
success.

Series B At this stage, your Acquire majority share of

£10M - £50M
company will have target marke
grown to 50+ people, Increase revenue substantiall
Growth
found product market Build team to 100
stage fit, started expanding Expand internationally
the offering, and
acquired majority
market share in your
home market.

Series C By now, companies are Enter new market

£15M -
almost always Increase market share through
£100M
profitable already and tactical acquisition of another
have won a large company
percentage share of the Invest in research and
addressable market.

development for new products
Fund IPO preparation
Capital raised at Series
C will fund activities that
deliver dramatic growth.
It’s often the last round
before IPO.
How to do a funding round: step-by-step guide 23

How to do a funding round: step-by-step

guide
A funding round at any stage is a serious time commitment, and takes you away
from the day-to-day business of running your company.

It’s essential to be prepared for the funding round before you go in with your
pitch. This will help you stand out to investors and close deals quickly and
efficiently, so you can get back to the actual work of building your business and
growing its value.



Abbie Main, 

Funding Specialist, SeedLegals

To help prepare you, we’ve broken down the steps involved before, during and
after the round.

Get investment ready 

Untangle your equity | Check your legal foundations | Get SEIS/EIS

approved | Prepare your pitch

Even before you set up meetings with potential investors, it pays to make sure
you’re perfectly organised. No investor wants to put money into a chaotic
company with an unsteady legal footing.
How to do a funding round: step-by-step guide 24

Untangle your equity

Sort out your cap table. Your cap table (capitalisation table) shows who your
company’s shareholders are and how many shares they own. If this is your first
raise, it’s important to make sure the founder equity split is agreed and reflected
in your cap table and on Companies House before investors see it. Investors
need to understand exactly what they’re buying into and how much of the
company they’ll control.

The easiest way to update and keep track of your cap table is to use
automated software to do it for you. On SeedLegals, your cap table
is integrated with your legal docs, so that every time your
shareholdings change, the cap table updates automatically. You can
also model different scenarios, so you can see what happens at new
funding rounds or on exit.

What a cap table looks like on SeedLegals

Share Nominal Value


Shareholding Fully Diluted £0.001

Shareholder Shares Shareholding Fully Diluted Investment

F1 Co-founder 1 486,455 44.18% 37.99% £20,473.24

F2 Co-founder 2 495,912 45.04% 38.73% £50,050.62

I1 Investor 1 10,000 0.91% 0.78% £6,700

I2 Investor 2 69,912 6.35% 5.46 £50,050.62

How to do a funding round: step-by-step guide 25

Create new shares through a share split. When you incorporated your company
on Companies House, you probably kept it simple and created one share per
founder, or perhaps 100 shares split between the founders. 

For investors, however, you’ll need more. We recommend having at least 100,000
shares before you do a funding round.

Create an option pool (if you plan on setting up an employee option scheme).
This reserves a chunk of equity for your team members as the company grows.
It’s better to do this before a funding round, because otherwise creating an
option pool will dilute the investor’s stake. 

Check your legal foundations

This is about getting ready for due diligence checks. These documents are the
ones you need in place to show you’re structurally sound. 


Founder Agreements lay out the rights and obligations of the founders. They
help protect the company from descending into chaos if there’s a disagreement
between the founders.


Your wider team also needs to be engaged on a firm legal footing. Team
agreements - including employee contracts, advisor agreements, consultancy
agreements - will come under scrutiny during the due diligence process.


For example, everyone who’s contributed to your product or idea should sign an
IP Assignment Agreement. You - and your investors - will want to be sure that
you own your own product. 

How to do a funding round: step-by-step guide 26

Get SEIS/EIS approved - become dramatically more

investable

In the UK, there are two generous tax schemes that incentivise investment into
early-stage, higher-risk companies, the Seed Enterprise Investment Scheme
(SEIS) and the Enterprise Investment Scheme (EIS).

UK angel investors get significant tax relief when they support smaller
businesses and startups. SEIS and EIS have become so central to the angel
ecosystem that many investors won’t even take meetings with startups who
aren’t eligible.

To prove you meet the various requirements of the SEIS and EIS schemes, you
can apply for SEIS/EIS Advance Assurance. To do this, you’ll need a pitch
deck that includes your business plan, financial projections and a copy of your
latest company accounts. 

It takes some time to gather that information and to process your application, so
it pays to tick this off before approaching investors. 

Do I need SEIS/EIS Advance Assurance?

Technically speaking, you don’t need to secure prior SEIS/EIS

approval for your investors to benefit from the schemes. Your SEIS/
EIS status isn’t official until you apply for SEIS compliance after the
round - but UK angel investors are keen to see you have Advance
Assurance, and, in many cases, won’t invest without it.
How to do a funding round: step-by-step guide 27

Prepare your pitch

To get to a sit-down meeting with an investor, you need to perfect two things

a compelling elevator pitc

a concise pitch deck


Your elevator pitch should make your value proposition clear in 30 seconds or
less. In a nutshell, why would a customer choose your product over anything else
in the market?


After your elevator pitch has grabbed their attention, the pitch deck is where you
can go into detail (but not so much that you go over 20 slides).

For an early-stage round, here are the main areas you’ll want to cover in your
pitch deck

the problem you’re going to solv

the solution you’ve develope
the market opportunity you’re going to capitalise o
your financial projections – be careful not to over-promise while still showing
ambitio
the achievements you’ve reached so far – for example, growth metrics like
web traffic, product waiting list signups or early revenu
your team – how the founding team are uniquely qualified to deliver the
targets you’ve set


On SeedLegals, you can create an investor-friendly Pitch page to share in just

one click. It’s quick to set up and you can track page views and investor interest,
as well as share documents in your confidential Data Room.

How to do a funding round: step-by-step guide 28

Agree the terms

Take control with the Term Sheet | Secure a lead investor | Pass due
diligence | Finalise the deal docs

When you’re in the swing of investor meetings, here’s what you’ll need to go from
handshake to signature.

Take control with the Term Sheet

This document will play a key part in your negotiations with investors. It’s a non
legally binding agreement that summarises the deal terms, including the
valuation, various investor rights and the allocation of board seats. Ideally, you
want to be first to get a Term Sheet on the table. VCs will sometimes send their
own Term Sheets to you. But, wherever possible, you should take the lead with
potential investors and be clear about the key deal terms you’d like to see.


We see three main benefits to taking the lead with the Term Sheet

Kickstart negotiations early and close meetings with discussions already

underwa
Gives investors the impression you’re already far along in talks with other
investors. This helps drum up interest and speed up talk
Helps you be prepared for your meetings and anticipate questions your
investors could ask

Far from just being a piece of legal admin, the Term Sheet is one of the biggest
strategic tools you have in your fundraising game. When speaking to investors,
particularly at early stage, so much of the battle is about demonstrating you're
the type of founder they want to work with. Having your Term Sheet ready to go
prepares you to answer any question, lead negotiations, create FOMO with
investors and ultimately sets you apart from the crowd.



Abbie Main, 

Funding Specialist, SeedLegals
How to do a funding round: step-by-step guide 29

After all parties are happy with the Term Sheet, the deal can progress to the
legally binding agreements.

It’s critical that you and your investors are on the same page about
whether you’re talking about pre-money valuation or post-money
valuation in your Term Sheet

The pre-money valuation is how much your company is worth

before the investment under discussion

The post-money valuation refers to how much your company will

be worth after the proposed investment into your company.


Pre-money versus post-money can make a significant difference in

the size of the equity stake your investors take, because it sets the
price per share.

Secure a lead investor to lead the negotiations

A lead investor effectively represents the rest of the investors in a funding round.
They are responsible for setting the tone for the rest of the funding round,
determining the valuation and the terms of the investment. 


They are usually a venture capital firm or an angel investor with extensive
experience in the industry and a strong network of contacts. Their involvement
can help bolster your credibility and encourage other investors to come
onboard.

How to do a funding round: step-by-step guide 30

Pass due diligence 

Before your investors sign any agreement with you or part with their cash, they’ll
need to do their due diligence on your company.


VC investors in particular will have an extensive checklist for their due diligence
covering many aspects of your business - from tax, finance and legal to your IT,
sales and marketing systems and statistics.



A digital data room can help speed the process along. Simply upload your
documents and give your investors access. 

As a SeedLegals member, you get access to our Data Room at no

extra cost. You can securely upload and share your confidential
documents with investors, control access through custom groups and
change permissions at any time. Find out more about Data Room. 

Finalise the deal docs 

After you’ve struck a deal with the investor, you’ll need to have the legally binding
documents finalised and signed. 


If you already have existing investors, then there are a few extra pieces of legal
work you’ll need to complete with them. 


But if this is your first investment, then the three main documents you’ll need are:


Shareholders Agreement


A document outlining the rights and obligations of the shareholders

Articles of Association


The rules that govern how your company will run - for example, whether board
meetings need a unanimous vote from the directors to pass a resolution. 


How to do a funding round: step-by-step guide 31

Disclosure Letter


A document that allows you to qualify and add context to statements about your
company that appear in the Shareholders Agreement. The Shareholders
Agreement typically includes general statements (called ‘Warranties’) that often
you need to add more detail to - so that investors don’t feel they were mis-sold.
The Disclosure Letter is where you give all the details that your investors need to
know.


When your investors are happy with these agreements and ready to sign, you
need a Board Resolution and a Shareholders Resolution to approve the
round. 


After that’s done, you’ll be ready to receive the funds. Congratulations!

Close the round

Update Companies House | Issue the share certificates | Complete the

SEIS/EIS Compliance process for your investors |  Prepare for your next
round

The hard work is done! Now you need to file important documents and get busy
meeting the goals you and your investors have set.

Update Companies House

File the SH01 with Companies House to update them about the new shares
you’ve issued, and send through the Shareholders Resolution and Articles of
Association.
How to do a funding round: step-by-step guide 32

Give share certificates to investors

Send the share certificates to your investors and update your shareholders
register.

Complete the SEIS/EIS Compliance process for your

UK investors

Now it’s time to get proof for your investors that their investment qualifies for tax
relief. To do this, you’ll need to follow the SEIS/EIS Compliance process. If you
secured Advance Assurance, you’ll have fewer documents to send to HMRC this
time around

Keep hitting goals to get ready for your next round 

It’s a huge accomplishment to close a funding round. But there’s no time to rest!
You’ll need to hit the ground running and put that hard earned cash to use to get
in a strong position for your next round, grow your company and generate an
impressive return for your investors.

Get funded faster with

SeedLegals 

There’s a lot to manage in a funding round. Our automated

docs, guided workflow and team of account managers can
guide you through every step.

Get expert guidance and help designing your funding strategy

Build and manage your cap table automatically

Create team agreements

Apply for SEIS/EIS Advance Assurance

Access all the documents you need

Send share certificates to investors

Complete the SEIS/EIS Compliance process

Get 1:1 support with your raise

Talk to a funding expert

Agile funding strategies - raise outside a round 34

Agile funding strategies - raise outside 


a round
If you read the last section and thought, ‘That’s going to take a lot of time … and I
need money now…’, you’re not alone. The traditional, lengthy, boom-or-bust
method of fundraising in formal rounds is far from the ideal scenario for a lot of
startups.

The problems with funding rounds

They take a long time


From negotiating the Term Sheet to completing due diligence, gathering

signatures and waiting for funds, the average funding round takes three to six
months. That’s not even counting the time it takes to find investors in the first
place. 


Waiting months for money you need now simply isn’t a viable option for many
startups. A timely cash injection is often the deciding factor between survival
and shutting down. 


They’re awkward and inflexible


With a traditional funding round, you can only move at the pace of your slowest
investor - and you might find yourself blocked at any point. You need to agree
every detail with every investor before you can take in funds. 

Plus, if you’ve only managed to raise part of your target amount, you have to
decide whether to cut your losses and close the round or continue to try to raise
and delay accepting the money you’ve already negotiated.

Agile funding strategies - raise outside a round 35

The solution is agile funding

Luckily, there are other ways to fundraise that allow you to to take in money
quickly at a fair valuation, without going through each and every step of a priced
equity round.


Agile funding allows you to take in cash quicker, when you need it

You don’t need to wait until all investors are lined up and in total agreement
before you take the mone

You don’t have to settle for raising a smaller amount than you planned to to
access the money you have negotiated

A funding round is like a bus trip

You need to round up all the investors, wait until the last of them arrives, pack
them all on the bus, agree a destination, and then trundle off together.



Agile fundraising is the Uber alternative

You find individual investors who arrive either before the bus has arrived or after
it’s left, grab a cab for them, and away they go. Repeat as needed.



Anthony Rose, 

Co-Founder and CEO, SeedLegals

In the past, treating each individual investor as a mini funding round would have
been prohibitively expensive because of the mounting legal costs of creating
individual documents. With our easy automated docs, however, that’s no longer
true.


There are three agile funding agreements that allow you to take individual
investments quickly. SeedFAST and SeedNOTE allow you to raise before your
round, and Instant Investment allows you to top up your round after it closes.

Agile funding strategies - raise outside a round 36

SeedFAST - SEIS/EIS friendly way to raise before

your round 

SeedFAST is our term for our Advanced Subscription Agreement. 


Investors effectively pre-pay for shares - you take their money now, and their
investment converts into actual shares later when you complete the funding
round. 


A powerful advantage of the SeedFAST is that you don’t need to commit to a

valuation when you make the agreement. Instead, the shares will convert at the
price of the valuation determined in your future round. Typically, investors get a
10% to 20% discount on that share price as an incentive to come in early.


But what if you don’t go on to complete a round? As a backup, you and the
investor agree to a longstop valuation. That’s the valuation the SeedFAST will
convert at if you don’t complete a funding round within the agreed timeframe.

SeedFASTs are SEIS/EIS compatible so long as they convert within six months of
the agreement.



Pro

A way to take in money whenever you meet an interested investo

No need to commit to a valuation at that tim

Gives you time to grow your valuation for your next roun

Eligible for SEIS/EIS investor tax relief - if the longstop date is within six
month

Attractive to investors with a high risk/reward appetite - they are banking on

you to grow your valuation using that money so they end up with a worthwhile
discount


Agile funding strategies - raise outside a round 37

Con

Creates a deadline to complete the funding round if you don’t want it to

convert at the longstop valuatio

Could damage the relationship with your investors if your valuation at the
funding round isn’t as high as they expect

In the US this is a very common way to raise, where it’s known as a

Simple Agreement for Future Equity (SAFE). If you’re in talks with
US investors, then they’ll be familiar with the concept - but
remember that they can’t benefit from SEIS/EIS unless they’re UK
taxpayers.

SeedNOTE - a short-term loan that converts into

equity 

Our convertible loan note, SeedNOTE, is another way to raise before a funding
round. The investment counts as a short-term loan, which converts into shares
at the next funding round or is paid back if no funding round happens.

Convertible loan notes are popular with more risk-averse investors, because
their investment comes with extra protection. Either they receive shares at the
next funding round as planned or they get their money back plus interest. And,
because the investment is classed as debt, if the company fails and liquidates,
they’ll have priority over other investors to get their money back.
Agile funding strategies - raise outside a round 38

Pro

Less risky for the investor

A way to take in money whenever you meet an interested investo

No need to commit to a valuation at that tim

Gives you time to grow your valuation for your next roun

Popular with investors abroad, who aren’t affected by the SEIS/EIS 


incompatibilit

A way to build credibility with investors through repaying debt





Con

Least ‘founder-friendly’ way to raise. The terms swing much more in favour of
the investo

As debt, it’s not eligible for SEIS/EIS investor tax relief

Top up your round with Instant Investment

You can use Instant Investment (the SeedLegals name for a Deed of Adherence)
to top up a funding round after it closes. For this, you need to make sure your
deal documents allow for a ‘rolling close’, so you can continue to raise on the
same terms. 


Instant Investment helps you when

One or two of your investors is taking longer to get ready but you have the
rest on boar
You need extra capital shortly after closing your round
When a new investor appears after you’ve closed the deal
Agile funding strategies - raise outside a round 39

Ironically, the time you often find enthusiastic investors is when word gets out
that you’ve just closed a funding round. Now instead of saying, ‘Sorry, you’re too
late’, you can say: ‘No problem, we’d love to have you onboard – I’ll send you an
Instant Investment right now.’



Anthony Rose, 

Co-Founder and CEO, SeedLegals

Pro

A way to take in money whenever you meet an interested investo

You can close your round to bank the money you’ve already raised, then
continue to raise with Instant Investment

Raise at the same valuation as - or a higher valuation than - your last round




Con

If your deal terms don’t include a rolling close, you’ll need permission from
your existing investors
Agile funding strategies - raise outside a round 40

Agile funding strategies - take cash quicker

Bridge between rounds | Replace a round | Hack your round

Now that we’ve introduced you to the various methods of agile funding on
SeedLegals, let’s look at how you can use them as part of your fundraising
strategy.

Bridge between rounds - extend your runway

Running out of runway? You can use agile funding as a bridge between rounds to
keep you going for longer. 


Whether you’re in crisis mode and need an emergency capital injection or you
want to delay your next round so that you can raise at a higher valuation than you
could now, you can use SeedFASTs and Instant Investments to bridge the gap
between rounds. 


Both SeedFASTs and Instant Investments can work wonders in this scenario.
Which one you go for mostly comes down to whether you've already pinpointed a
valuation you’re happy with (Instant Investment) or not (SeedFAST).

Replace a round - raise as you go 

Since we launched SeedFASTs in 2018, we’re increasingly seeing founders using

big, full round-size SeedFASTs to skip the traditional round altogether.



Remember, under HMRC rules, a SeedFAST must convert within six months to
qualify for SEIS or EIS. If you raise the entire amount you wanted with
SeedFASTs, you’ll probably have enough money that you won’t need to do a
funding round before that six months is up. That means those SeedFASTs would
convert in six months - at the longstop valuation that you agreed with your
investor when you created the SeedFAST.
Agile funding strategies - raise outside a round 41

If you pick the longstop valuation wisely - perhaps your best estimate of the
company valuation as it would be in six months - then this is an effective strategy
to defer the need for a funding round and simply raise as you go.

We’ve also seen founders using Instant Investments to continually top up their
last round for longer than we first anticipated. Because you can have an Instant
Investment agreement ready to go in minutes, you can raise little and often
whenever the opportunity arises. For many founders, this takes much less time
and effort overall than gearing up for a formal funding round.

Hack your round - drive up your valuation

So far, we’ve covered the two main ways to think of agile funding strategies: to
get you from one round to another and as a replacement for a full round. 

But at SeedLegals we’re seeing the huge benefits of using SeedFASTs inside a
funding round. More powerful than a bridge - with this strategy, SeedFASTs work
as rocket fuel for your raise.

With SeedFASTs, you can lock down the earliest investors in your round,
access funds to add value to your business and close the round at a higher
valuation than you would otherwise have been able to. Let’s break down how it
works:


Drive up your valuation


As a founder, you’re at a disadvantage committing to a valuation at the beginning

of your round. You probably haven’t yet built enough traction to justify a high
valuation to your investors. But you still want to give away as little equity as
possible in the early stages of your business. 


With SeedFASTs, you can defer the valuation and use the early investment to
make your company more attractive to investors. 

40% 
 On SeedLegals, we see that founders who use SeedFASTs

to launch their rounds are able to raise at valuations that are,
higher valuations 
on average, 40% higher than rounds without a SeedFAST.

Agile funding strategies - raise outside a round 42

If you pick the longstop valuation wisely - perhaps your best estimate of the
company valuation as it would be in six months - then this is an effective strategy
to defer the need for a funding round and simply raise as you go.

Build traction with investors 

It’s easier to win over investors when you already have an investor in your corner. If
you can show you already have investors committed to your round through a
SeedFAST, that helps you build credibility with other investors later in your round. 


It also can help you get over the lead investor problem. With a traditional round,
you typically can’t get any momentum until you’ve secured a lead investor and
agreed the terms with them. It’s a real hurdle that can block your ability to take in
the cash that you need. 


But with SeedFASTs, you can take funds from investors without waiting to fill the
rest of the round - or even securing a lead investor. And just the fact that you’ve
already won investment makes you a more credible bet in the eyes of investors
you approach later in the round. 

Lead investors need to be confident that you can complete a raise before they
jump on board. Ultimately, their decision won’t just be made on the strength of
the company’s traction or the founder’s reputation within their industry. If they
don’t trust that you can win the full investment amount, they won’t put their
money at stake. That’s why building investor momentum through SeedFASTs is
such a powerful strategy, especially if you're looking to try to capture
institutional investors or VCs.



Liliana Conrad, 

Funding Expert, SeedLegals

We see this best-of-both-worlds approach as the new gold standard of

funding. It allows you to adapt to the risk appetites of different investors,
lock in funds earlier and put that cash to work instantly to grow your
valuation. As a launchpad for your raise, SeedFASTs give you the power to
get as much as possible from your funding round. 

Talk to the funding

experts
Get specialist support for your funding round


1 in 6 early-stage funding rounds closes on SeedLegals. That’s

because we combine expertly drafted, automated legal
documents with specialist support. The result? Faster, less
costly funding rounds that work for, not against, founders. 


Book a free call with a funding specialist to find out more

Design your funding strategy with help from your dedicated

account manager

Create and negotiate all your investment documents in one

powerful, streamlined workflow

Share, sign and store all your documents online

Unlimited help included for your round 

Save thousands in legal and accounting fees

Talk to a funding expert

Jargon buster 44

Jargon buster

Cap table 


Short for capitalisation table, the cap table is a data table (or spreadsheet) that
shows allocated shares in the company and any share options. It’s a visual
representation of who’s put in money to the company, how much, and what
shares they own.


Before you approach potential investors, your cap table must be ready and up to
date because investors will ask to see it. You can use the cap table to project the
number or percentage of shares to offer investors, based on how much they
invest. You’ll also be able to view how potential investments would dilute existing
shareholders.


You’ll need to update your cap table whenever there are changes to your
company’s shares. If you use SeedLegals to create your cap table and make
these changes to your shareholdings, then the cap table is automatically
updated – you don’t need to do anything.


Dilution


When a company sells or gives away equity to investors, employees or advisors,

it issues new shares. Through this practice, the existing shareholders end up
owning a reduced proportion of the company, despite not selling any of their own
shares. This outcome is known as dilution.


Down round


When a company sells shares at a lower price per share than in a previous round.
As well as signalling that you’re not hitting growth targets, this is bad practice,
because it overly dilutes your existing shareholders. New investors at this stage
will get a bigger company stake for a smaller investment, so earlier investors are
effectively punished for shouldering the risk of coming in early.  

Jargon buster 45

Longstop date/valuation

The longstop date is the date by which your SeedFAST must convert if there is
no funding round. The longstop valuation is the ‘Plan B’ valuation the investment
converts at, if no funding round takes place with a new valuation.

Minimum viable product (MVP)

A version of a product or service with just enough features for it to be worth

releasing to early users. The established practice is for startups to quickly get an
early version of their product to market, test if there’s appetite, and improve it
from there.

Product market fit

This is the end goal of releasing a product. You want to have created something
that is used and loved by your target audience. If you nail product market fit, it
means that your product is so well suited to the needs of your specific users that
it becomes the go-to solution. 

Customer retention, non-incentivised referrals and growing revenue are the

main indicators that you’re on track to hit product market fit. And when you’ve
done that, you can focus on scaling your company.

Runway 


How many months your business can keep going before you run out of money.
We recommend startups aim for a minimum of 12 months of runway, and ideally
18 months or more.



SEIS/EIS


The Seed Enterprise Investment Scheme (SEIS) and the Enterprise

Investment Scheme (EIS) are two tax relief schemes backed by the UK
government to encourage innovation. They incentivise investors to support new
and less well established businesses.


When trying to raise money from UK angel investors, you’ll make yourself more of
an attractive prospect by applying for SEIS/EIS Advance Approval. This shows
that you meet the eligibility criteria for the scheme. 

Jargon buster 46

Traction

Traction is a general term that describes how much momentum your startup is
building as it grows. You want to be able to show that you’re making quick
progress, for example by growing your user base or increasing revenue.

Valuation 

A measure of how much your startup is worth. If you’re profitable, this is usually
measured as a multiple of your annual revenue. For startups in their early stages,
the valuation is an assessment of their growth potential, which is harder to define

Pre-money valuation - how much your company is worth before the

investment under discussio
Post-money valuation - how much your company will be worth after the
proposed investment into your company

In a funding round, the valuation sets the price of a share and so defines how
much equity the investor gets for their investment. The startup and lead investor
will negotiate to set the valuation.

Venture capital

Venture capital is money given to high-growth companies in exchange for equity.

Venture capital firms invest in companies with potential for high growth because,
although it’s risky, these investments present the opportunity for a very high
return in a short amount of time. VCs usually expect an ROI (return on
investment) of 10 to 50 times the amount they invest within five to seven years.

Jargon buster 47

Read more from our experts

There are many more free resources on our website - here are just a few:

Are you ready for VC funding?

Done right, the significant capital raised from a VC could be vital to

your progression as a business. But, it’s also a huge dedication of time,
effort and money - and not right for every company or every founder.



View post

How to value your pre-revenue company

Find out how to approach pre-revenue valuation and what solid

numbers and facts you can use in your discussions with investors
when you can’t point to revenue performance.



View post

How to fundraise in an economic downturn

Times are changing and many companies will need to adapt to

survive. Here’s what you can do to maximise your chances of success.



View post

How to pick the right deal terms for your SeedFAST

We explain the four key deal terms in a SeedFAST and dig into our
data to help you pick the perfect terms for your advance subscription
agreement.



View post

Explore our investor directory

Find out where active investors are hiding and how to approach them.
We’ve put together lists of VCs and angel groups to help get you
started on your funding journey.



Find investors

For these posts and more, go to:


SeedLegals > Resources > Funding Guides