All the steps you need to close your bootstrap or seed round.
You’ve started your first SeedLegals funding round: you're busy sending out your pitch deck and trying to secure investment, but now you need to sort all the legals, work out how to close your round and make sure you’re doing it all on founder-friendly terms that won’t hurt you or your startup in the long run.
That’s where SeedLegals comes in. We make closing your round quick and easy.
First, we sort the basics, like working out your round dilution. Then you choose your preferred terms and we automatically create your term sheet ready for you to share with your investors. Once your investors are lined up we generate the relevant legal documents you need all at the click of a button, so you can get these signed and filed as needed.
What’s more, our handy funds tracker helps you work out which investments are outstanding making it easy for you to map out the steps needed to close your round, so that you can focus on what’s important: securing the funding you need to keep growing your business!
In this article, we talk you through how to close your funding round on Seedlegals. This guide includes:
Setting up your Funding Round
Negotiating your Term Sheet
The Legal Documents - what, when, and who needs to sign?
Approving the Funding Round
Tracking Your Funds
Closing your Round
Updating your Companies House Filings
Issuing Share Certificates to your Investors
If you are considering doing a funding round and have questions about how easy using SeedLegals to do this could be, we’d love to chat with you about your funding plans and how we can help you. Just book some time with an expert here.
1. Setting up your Funding Round
To get you started, we’ve created a short three-minute video that takes you through the overview and the flow of your round as a whole: Funding Round Overview on Seedlegals (Video Guide)
Now that you’ve started your round, you will have already set out your basic Funding Round information in the product overview section and maybe even added your intended investors.
For many founders doing their first funding round, it can be tricky deciding how much to raise and how to value your company. Your main focus pre-round should be getting on top of what most investors will want you to have sorted ahead of your funding round.
Here’s what investors will be looking for:
SEIS/EIS Advance Assurance
Getting the basics in order before you start pitching to investors is vital, so do take a look at our guide on How to Prepare for your First Funding Round on SeedLegals.
2. Negotiating Your Term Sheet
Once you’ve sorted the basics, the fun starts!
Your term sheet provides your investors with a summary of the Key Deal Terms of your funding round, which you complete in step one. It’s a non-legally binding agreement that gives an overview of the terms you will set out in your long-form (and legally binding) documents (Shareholders Agreement and Articles of Association), so your investors can see what they will be getting for their investment.
For a funding round first-timer, building and negotiating your term sheet can seem overwhelming. Seedlegals has transformed the deal term negotiation process for you so that you can pick variables to automatically generate an on-platform term sheet on your terms. After you have prepared your Term Sheet, our support team is at hand to assist you in finalising your requirements to ensure you are investment-ready.
To find out more about the key terms in a term sheet, take a look at the following articles:
The ‘key deal terms’ section allows you to set out permissions for topping up your round with Instant Investment after it has closed. In the past, when you did a funding round, once the round was closed adding investment later meant doing another round. We've changed that, we call it agile fundraising. By enabling Instant Investment you can easily top up later, even at a higher valuation, by creating Instant Investments instead of having to do another funding round. About 75% of funding rounds on SeedLegals have Instant Investment enabled, with a typical Instant Investment amount of 30% of the round size. More on Instant Investment here.
Any further questions? Simply reach out to your dedicated Investment Expert! We make sure every round that goes through the platform has an Investment Expert but if you're unsure who that is, jump on the blue chat bubble in the bottom right corner.
Once you’ve sent your Term Sheet to your investors, negotiating the terms couldn’t be easier - no more sending heavily marked-up Word documents back and forth with investors, you can simply edit the relevant field and instantly rebuild a term sheet that matches what both parties want.
If you’ve been sent a term sheet from an investor that you are being asked to sign, that’s no problem - just take a look at this article: My investors have sent me their Term Sheet. Can I upload it to SeedLegals? | SeedLegals
Once you’ve sent out your Term Sheet to your investors, you need to get all your investors to sign.
If the investors would like to negotiate a bit before agreeing to the term sheet, please do reach out to your Investment Expert if you are unsure of any of their requests and they will be happy to discuss these with you.
3. The Legal Documents - what, when, and who needs to sign?
This section will talk you through the documentation you need to close your round. Once your term sheet is signed, you know your investor is on board with the summary of the terms - but the long-form documents (being your Subscription and Shareholders’ Agreement and the Articles of Association) are where all the detail comes in.
Here are the 3 Key Legal Document you’ll need to close a funding round on SeedLegals:
Subscription and Shareholders Agreement (a.k.a the Investment Agreement) (Bootstrap + Seed)
Articles of Association (Bootstrap + Seed)
Disclosure Letter (Seed Only)
In addition, If you’re doing a Seed Round there are few extra steps you need to take. These steps are:
Previous Investor Consent (Seed Only), only if investor majority consent has been activated in a previous round
Preemption Notice (Seed Only)
‘Advanced Terms’ (Seed Only)
A . Subscription and Shareholders Agreement (Bootstrap + Seed)
Your Subscription and Shareholders Agreement is the agreement that sets out the relationship between the company and the investors and forms the backbone of your round.
It is the legally binding agreement between the Founders, existing shareholders (if there are any) and the Investors, pulling together all the terms you’ve selected in your Key Deal Terms, Advanced Terms and Disclosure Letter. It is drafted in legal terms to contain all the relevant provisions selected, as well as the finalised cap table post-investment and other information your investors need to know.
Your Subscription and Shareholders Agreement must be signed not only by the new investors but also by any existing shareholders who have voting shares and the authorised signatory on behalf of the company.
B. Articles of Association (Bootstrap + Seed)
The Articles of Association set out the Company provisions that relate to the Companies Act 2006 such as share transfer provisions, the responsibilities of directors and the powers to issue different share classes. This is why it is often referred to as the ‘constitutional’ document.
Your Articles are filed on Companies House and are a public document. No one needs to sign the Article since they are adopted by the shareholders through a shareholders resolution, but you do need to share them with your existing shareholders and new investors for their approval.
C. Disclosure Letter (Seed Round Only)
When investors decide to invest in your business they are doing this based on representations you have made about the state of your Company. Legally, these are known as ‘warranties’ which are statements of fact. To protect yourself, and the company, if a certain warranty is ‘untrue’ in any way, you must sign a disclosure against the warranty and ensure enough information is provided. This is where the disclosure letter comes into play.
A simple example of a warranty is a share capital warranty where a company makes a representation that their cap table is accurate. If the company actually has an advisor agreement where they have promised an advisor 1% of options after a funding round, the company will need to disclose this to incoming investors as part of their disclosure letter.
For more information, take a look at this article: What does the Disclosure Letter do, and why do my investors have to sign it? | SeedLegals
Some founders ask why they need a disclosure letter at all, given that their Subscription and Shareholders Agreement (Investment Agreement) includes standardized representations about their Company. It’s a great question, and the reason is that if these representations turn out not to be true, your investors can bring a warranty claim against you for misrepresenting something about your business in the agreement. Usually, such claims can only be brought within 12 months of closing your funding round, but even so, it’s not something you want to worry about.
So, the disclosure letter gives you a get-out-of-jail-free card (if disclosed correctly!) by allowing you to qualify the representations you make in your Subscription and Shareholders agreement. It is not a problem that the Agreement warranties are not correct, or need further explanation, as long as the specific, relevant information is set out in your Disclosure letter.
We make generating your Disclosure Letter simple so you can share it with your investors, who will check the warranties set out in Schedule 5 of your Subscription and Shareholders Agreement. They can then compare this with the statements in your Disclosure letter, and sign it once they are happy.
D. Previous Investor Consent (Seed Round Only)
If this is your first funding round, and you don’t have a previous Shareholder Agreement, you will not need the consent of previous investors to issue new shares.
However, if you have a previous funding round with a Shareholders Agreement that includes a term requiring the consent of a specific investor or group of investors for the issue of additional shares, then you will need to get consent from those relevant investors before you can complete your round.
If this is the case, you need only include the date of your previous Shareholders Agreement, and the date of the Investor Consent Letter you wish to send out as part of this round to obtain the relevant consent. The platform will then create an Investor Consent Notice for you to share with your investors.
The Investor Consent notice will need to be signed by all investors who were given investor consent in your previous Shareholders Agreement.
E. Preemption Notice (Seed Round Only)
In addition to the previous investor consent requirements, your existing shareholders have the right to purchase more shares on a pro-rata basis to maintain their percentage holding in the company. This is a statutory right enshrined in the law as well as your existing articles of association. You must send them a preemption notice once your investors are lined up, so they are made aware that they have the option to exercise their preemption right at this stage and before you take in any new investment.
The Preemption Notice needs to be sent to all the relevant shareholders.
If your existing shareholders reply within the period you have set saying they want to exercise their pre-emption right, you will need to work out the investment they need to make in order to maintain their pre-money shareholding. Take a look at this article on How to calculate preemption amounts. You can then just add them to the funding round on SeedLegals. If you’re having trouble calculating preemption totals, please reach out to us.
F. Advanced Terms (Seed Round Only)
In the ‘Advanced Terms’ section, we enable you to set terms in more detail. For example, you can indicate whether you plan to create a share option scheme or if you have granted shares to employees, and you can put founder restrictions in place to stop the founders from joining competing businesses.
You can leave these terms to the ‘default’ selections on the platform for early-stage rounds, but keep in mind that you might have to accommodate requests as negotiations progress.
If you’re unsure of any changes, please reach out to your Investment Expert.
Once you’ve agreed on the terms with your investors, you share the three legally binding documents with those investors at the same time:
Articles of Association
When your investors are happy with these agreements and are ready to sign, you get to move on to the best part: Receiving the money and approving your funding round!
**Important: When your Subscription and Shareholders Agreement is finalised, you must unlock and complete your Board and Shareholders Resolutions to approve the round. More information on these documents later.
4. Approving the Funding Round
Every time you do a funding round, you will need the approval of your Board of directors and your existing Shareholders.
The documents you will need to complete are:
Your board is the first group of individuals who will need to approve your funding round. So when your company decides to raise investment, the Board must hold a meeting. The board minutes produced by SeedLegals will document the meeting where this approval is given. You will need to run the meeting in accordance with your Articles and get a Director to sign the Board Resolution. Crucially, this meeting must be held either on or before the date of the Shareholders Agreement, since these minutes ‘approve’ the list of investors. Easy!
In addition to the Board, your existing shareholders must approve the funding round. We said above that your new Articles of Association do not have to be signed by any of your investors. The reason for this is that your existing shareholders ‘adopt’ the new Articles by signing a Shareholders Resolution. It is very important that you get this resolution signed, as this finalizes the adoption of your new Articles and gives the Board the ‘authority' to allot a certain number of shares in the share capital of the company. Without this authority, you cannot issue shares to your investors in the funding round. Have a read of our article for more on this: What do the numbers mean in a Shareholders Resolution?
The Companies Act 2006 requires that to adopt new Articles of Association and disapply pre-emption, the Resolution must be signed by at least 75% (by the number of shares held) of your voting shareholders. Please note that if you already had your own Articles before the funding round you should check that these articles have not set a higher percentage requirement of voting shareholders needed, or such other requirements, to legally sign the Shareholder Resolution. If they have, you will have to satisfy the conditions in your Articles before filing the Resolution with Companies House.
We recommend you make sure that the Board Resolution and Shareholders Resolution are finalised before you start receiving any funds.
5. Tracking Your Funds
One of the main pain points of a funding round is tracking investments. As soon as you have more than half a dozen investors, you would normally have to create a spreadsheet of investor details, investment amounts, dates, discounts and S-EIS information to keep track of the transfers. It's important you track the dates, because, as per SEIS/EIS rules, shares can't be issued until all the funds have been fully received in the Company account.
We know how time-consuming this can be, so we built the SeedLegals Funds Tracker to take care of it all for you. As you receive each investment into the company bank account, you just add it to the Funds Track, and we take care of the rest!
We would recommend you wait until the Shareholders Agreement and Disclosure Letter is fully signed before starting to receive the funds. This is for the sole reason that you don’t want to get into a situation where an investor ends up disputing or wanting to amend some of the terms while the document is partially signed. Where possible, make sure an investor has signed all the key legal documents before you confirm that they can transfer their investment amounts. If you do receive the funds before the Shareholders Agreement is fully signed that is fine! Just make sure you don’t spend anything.
6. Closing your Round
Congratulations! If you have got this far then you're nearly ready to finalise everything and issue the share certificates.
Before you close the round or hit the ‘Issue Share Certificates’ button, please use the Chat bubble and/or contact your Investment Expert and we will check everything and close the round for you. It's all part of our service and a necessary step to ensure that the i’s are dotted and t’s are crossed.
For more information on closing your round, take a look at our resources on this:
7. Updating your Companies House Filings
Once we have checked everything over and closed your round, you need to update your Companies House filings by filing the SH01 form that we automatically generate for you on-platform. The SH01 must be filed within 30 days of the date of allotment (being the date of your SH01)
We will send you a ‘next steps’ guide to take you through the final bits of paperwork so you can complete the needed steps.
The following documents must be sent by post, or sorted online:
SH01 (post or web-file)
Shareholders’ Resolution (post or upload)
Articles of Association (post or upload)
For more details on e-filing and uploading documents with Companies House, check out this article: Stop printing, get e-filing with Companies House — SeedLegals
8. Issue Share Certificates to your Investors
Once you have filed the SH01 with Companies House, you proceed to issue Share Certificates to your Investors: How do I issue share certificates? | SeedLegals
On completion, you can finally begin the S-EIS Compliance process, which we’re more than happy to help with too!
More on that here: How to do your SEIS/EIS Compliance on SeedLegals | SeedLegals