Fundraising 101: Expert Legal Tips for Startups Raising Investment

Fundraising 101: Expert Legal Tips for Startups Raising Investment

Starting and scaling a business is an exciting, and sometimes stressful journey - especially when you’re looking for investment. Recently, Cullen (our resident Corporate Senior Associate and fundraising specialist) endured some truly disgus-ting drinks as he discus-sed his top legal and strategic tips for founders – get it? Below, we’ve pulled out the key insights and fundraising tips for those taking part in seed funding to series A.

1. Incorporating a New Business: Nail Your Shareholder Relationships

One of the most important steps when incorporating your business is figuring out shareholder agreements early on. Many startups overlook the importance of structuring equity management properly, which can create major issues down the line.

💡 Tip:

• Define co-founder relationships clearly

• Allocate equity before your company gains traction

• Consider reverse vesting to protect against founders leaving early

Why It Matters:

• If you wait until your startup has value, issuing founder shares can become more expensive and complicated.

• Having a clear plan for equity (and roles) from day one keeps everyone aligned on expectations and responsibilities.

2. Seed vs. Series A: Understanding the Funding Stages

Many founders assume there’s a strict legal distinction between seed funding and Series A, but it’s more about business maturity that Investors use to understand what stage of the business you’re at.

💡 Tip:

• Make sure your pitch deck and financials clearly reflect whether you're raising a pre-seed, seed, or Series A round - investors want clarity.

• Investors at the seed stage look for a strong team and early traction, while Series A investors expect proven revenue models and scalable growth.

Why It Matters:

• Being transparent about your stage ensures you attract the right type of investor.

• Knowing your stage helps you structure realistic valuations, negotiate better, and avoid confusion about what you can offer.

3. Term Sheets: Why You Should Take Them Seriously

A term sheet lays out the key terms of an investment round, and while it isn’t legally binding, it sets the foundation for your final agreement. Many founders get excited and sign too quickly – be cautious of this

💡 Tip:

• Always review your term sheet carefully before agreeing.

• Seek legal advice early to avoid agreeing to bad terms.

• Remember, while not legally enforceable, it’s seen as bad faith to backtrack later.

• Taking the time to negotiate your term sheet ensures your venture capital deal aligns with your long-term goals.

4. Common Legal Mistakes Post-Fundraising

After securing startup investment, founders often get so caught up in scaling that they neglect corporate governance. Two of the most common mistakes:

1️⃣ Ignoring Admin & Compliance

• File all Companies House documents, including confirmation statements and annual accounts, on time.

• Keeping everything in order boosts investor confidence and improves eligibility for future investment rounds.

2️⃣ Co-Founder Disputes

• Even if relationships start strong, disagreements arise.

• Have reverse vesting clauses and clear agreements in place.

• Ensure exit mechanisms are structured properly for departing founders.

Ignoring these elements can lead to costly legal issues down the line.

5. Preparing for an Investment or Exit

Whether gearing up for an investment round or a full exit strategy, due diligence is crucial. Investors and acquirers will scrutinise every detail, from employment contracts to share capital records.

💡 Tip:

• Keep all contracts, agreements, and documents organised.

• Ensure your statutory books are up to date (especially your share register).

• Make compliance a habit, not an afterthought.

• By staying on top of your legal and financial documentation, you’ll make your fundraising journey smoother and more attractive to venture capital firms and potential buyers.

Final Thoughts

Raising funds from seed through Series A and beyond comes with its fair share of challenges (thankfully, not always as nasty as the drinks Cullen had to stomach). By focusing on strong shareholder agreements, understanding your company’s funding stage, respecting the power of term sheets, maintaining proper admin, and staying prepared for due diligence, you’ll be well on your way to a smoother fundraising journey 🚀

If you’re a founder prepping for an investment round or eyeing an exit, take these tips seriously. And remember, while we can’t guarantee that your next meeting won’t involve a fish-flavoured drink, we can guarantee that solid legal foundations and good planning will set your startup up for success. Cheers to raising capital - without the chunkiness!

Thinking about your next raise? Drop us a line: hello@founders-law.co.uk

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