Looking to get investment-ready ahead of your first funding round?
In this article, we’ll cover the 10 questions you’ll want to ask yourself while preparing for your first funding round:
When should I incorporate my company?
How should I structure my shareholding at incorporation?
How do I get my Companies House filings and Cap Table in order?
Do I need to do a Share Split?
What agreements should I have in place before starting my Funding Round?
How do I find investors?
How do I optimize my pitch deck?
Seed Round vs Bootstrap Round - what’s the difference?
How do I complete the SeedLegals Funding Round Overview Section?
How do I add investors to my Funding Round?
This article is designed to help you prepare for a funding round. If you are looking to raise investment soon, have an idea of how much you’ll be raising, and have investors lined up already, we’d love to chat with you about your funding plans and how we can help you. Just book some time in with an expert here.
When should I incorporate my company?
Incorporating a company is quick and easy: it only takes 10 minutes and costs £12 online, but deciding when to incorporate is an important decision.
We recommend that you incorporate your company when you have settled on an idea that you believe is “the one” and have started making that idea a real offering. Do make sure that you have considered the costs of maintaining an incorporated company - such as the Companies House fees for ongoing filings - and that you have thought about how you want to structure the company and its shareholding from the start.
When you are ready to register your company, you will need to apply for an incorporation certificate by submitting an IN01 form to Companies House. Take a look at our article on How to Understand and Update your Companies House Filings | SeedLegals for more information. It’s designed to be pretty straightforward, but if you have any specific questions just click the chat bubble below.
2. How should I structure my shareholding at incorporation?
You will most likely want to incorporate with 100 shares and a nominal value of £0.01. This will give you a £1 share capital and allow you to set out a simple shareholding split between the initial founders. The funds do have to be transferred into your Company account, so try to avoid incorporating with 1 million shares at £1 per share!
We always recommend that you incorporate your company with Ordinary shares so that shareholders can vote proportionally to the number of shares that they hold. Generally, investors prefer to invest in companies with a clean share class structure, so keeping it simple is the best approach here.
You can then make changes in the future, as and when needed. For example:
You will likely want to add a second share class with reduced rights (e.g. B Ordinary (non-voting) shares) if you later set up an employee options scheme
You will want to do a share split to increase the number of shares while maintaining the same share capital before you do your funding round (see point 4)
Once you have incorporated your company, you can start using a company bank account, push forward with pitching to investors and apply for SEIS Advance Assurance.
3. How do I get my Companies House filings and Cap Table in order?
Whenever you take in investment, you want your Companies House filings to be up-to-date so that the incoming investors are getting a true picture of your shareholding history.
Whether you have just incorporated or are needing to revamp your Companies House and build your SeedLegals Cap Table to match, take a look at our articles to get started:
If you’re looking to issue shares or allocate share options to key team members ahead of your funding round, you may also want to have a read of:
Please note, issuing or transferring shares at a nominal value close to an upcoming funding round can be viewed as a taxable event by HMRC. We would always recommend offering share options to non-founding members rather than shares, but if you are set on issuing or transferring shares ahead of your funding round, you should discuss the tax implications of this with your accountant.
4. Do I need to do a share split?
You will want to have at least 100,000 shares on your Cap Table before you take in investment as part of a funding round to make the investor percentages and price per share manageable.
Instead of issuing new shares to increase your total share number, a share split sub-divides your existing shares in order to reduce your price per share in the funding round.
Price per share = your pre-money valuation / the number of shares you have in the company
So the higher the total number of shares, the lower your price per share. The lower your price per share, the closer the investor will be to their investment target. The reason for this is that fractional shares don't exist. Let’s use an example:
Let's say you're valuing your company at £300k and you have 1,000 shares. This would give you a £300 price per share, and would mean that an investor wanting to invest £10,000 will either need to invest £10,200 for 34 shares, or £9,900 for 33 shares. If, however, that company splits their shares so the price per share is now £3, the investor would be able to get much closer to their £10,000 target - either giving £10,002 for 3,334 shares or £9,999 for 3,333 shares.
Doing a share split on SeedLegals is quick and free! Take a look at our article on How to do a share split | SeedLegals for a simple guide on how to sort a share split on-platform.
5. What agreements should I have in place before starting my Funding Round
Before investing in your Company, your investors want to see that you have taken basic steps to protect your Company from potential fall-outs and to formalize existing internal relationships.
The key documents you will want to have in place or set up if you have not already done so, are:
Founders Pledge and/or Founders Service Agreement (depending on whether your founders are receiving a salary or not)
Employment Agreement with vesting
Have a read of our article on the 7 essential legal documents for UK startups. The great news is that all of these essential contracts are included in our free trial and paid subscriptions. Our three subscription plans are tailored for the stage of start-up you are at, so take a look at our SeedLegals subscriptions to find the right plan for you.
You can also read about all of our on-platform agreements and get started today:
6. How do I find Investors?
One question we get asked repeatedly is can SeedLegals connect me with investors?
This may be something we offer in the future, but at the moment our main focus is building a platform that provides you with everything you need to get set up and bring in investment. We handle all the complicated legals so you can concentrate on nailing your pitch and securing those make-or-break investment opportunities.
While we don’t match companies with investors, we do know where you should be looking for investors so take a look at our definitive guide on How to find startup investors — SeedLegals and do check out our Investor Directories & Lists in the UK for up-to-date information on the most active angels, S-EIS funds, VCs and more, both in London and regionally.
Here's a quick overview of the types of investor you'll meet at each stage:
Friends and Family: Earliest stage, £1k-20k, basic protections
Angels: Next stage up, £10k-£150k, basic negotiations and occasional basic consents / standard board seat
Funds / Syndicates: £150k-£500k, groups of investors, mid-level consents and probably a board/advisor seats
Venture Capitalists (VCs): £500k-£10M+: Post-revenue, full negotiations, likely Investor Director
7. How do I optimize my pitch deck?
Once the basics are in order, but before you start pitching, make sure you have optimized your pitch deck to include all the key details your investors need to know.
Have a read of our Pitch Deck Template for the 11 key elements you should include, and be sure to add this essential slide to your Pitch Deck to incentivize investors when you are applying or have been approved for S-EIS relief.
Once your pitch is over, potential investors are going to want to go deeper than the surface level. They will most likely ask questions about:
Growth plans/financial projections
Founder Share Vesting Schedules
EIS / SEIS Advance Assurance
Your Cap Table
Due Diligence on Founders and Team
If you’ve followed the steps above, you will have this all sorted ahead of time, so you can show your investors that you are on top of the legals and investment-ready. What’s more, you can even invite the investors by email to your SeedLegals profile and give them access to your Cap Table and other relevant documents so they can see everything they need in one place.
8. Seed Round vs Bootstrap Round - what’s the difference?
You do not have to have investors committed to open your Funding Round on SeedLegals. In fact, it's more likely you will want to get everything set up so you can send out your term sheet to interested investors.
Before you open a SeedLegals Funding Round, you’ll need to decide whether you will be doing a Bootstrap or a Seed round. Take a look at our article on Seed Round vs Bootstrap Round - Startup Funding | SeedLegals to work out which one is for you.
Essentially, a bootstrap round is designed for family and friend raises where you are taking in investment from everyday investors who aren’t too fussed about the commercial nuances of key deal terms and are just looking to formalize that a transaction has taken place. Where you’re taking in funding from angel investors or funds, looking for comprehensive commercial deal terms, or wanting to set up an options pool as part of the round, you’ll need to open a Seed Round. Once you’ve found potential investors, have a read of our guide to Raising startup capital from friends, family, or someone you just met? Here’s how to keep it legal.
Ready to get started? Just book some time in with an expert here.
9. How do I Complete the SeedLegals Funding Round Overview Section?
When you open a funding round on our platform, you’ll be able to set the overview details of the round. The overview includes:
Target Close Date
Target Raise Amount
De Minimis Aid/Remaining SEIS Allowance
Options Already Allocated
Option Pool Extension (in seed round only)
Remaining S-EIS Allowance
One of the most important parts of the overview section is the “Remaining SEIS Allowance” field. If at the time of this new funding round you have previously received either de minimis aid or S-EIS investment, both of these types of funding deduct from your SEIS allowance. You can find out more about how de minimis aid deducts from SEIS in our article: Your SEIS Allowance: De Minimis Aid Deductions | SeedLegals. If you fill out the “remaining S-EIS allowance” field with a SEIS allowance that is higher than the allowance you actually have left, you may end up promising SEIS relief to investors who actually cannot benefit. If you have any questions about your SEIS allowance please reach out to the team via the live chat.
For more information on the key parts of the funding round overview section, have a read of the following articles:
10. How do I add investors to my Funding Round?
When you begin adding investors to the ‘investors’ section of your funding round, make sure your investors have full names, and addresses and double-check their emails are correct. We can fix this later down the line before the documents are signed, but it’s good to get it all sorted from the start to avoid waiting to close your round because you need an investor to add an address or change the email address that their documents are getting sent to. This article explains Why investor names and addresses need to be shown in legal documents.
Wondering how many shares make up a certain equity %, whether to give your investor(s) a discount or how to add a company investor?
First, have a read of our article on How do I calculate how many shares to give someone to equal a given % equity?
In terms of discounts, you can give any of your investors a discount when you set up or edit their investment details, but just be aware that as soon as you give a discount to one investor, it’s very likely your other investors won’t be too happy when they see they are not getting one, and they will likely ask for the same discount!
Finally, for more information on adding non-individual investors, read our article on How do I add an investor that’s a company or fund, rather than an individual?