How to close SEIS/EIS funding before the tax year deadline

The run up to 5 April is one of the frantic peaks in the fundraising calendar with investors looking to maximise their SEIS/EIS allowance by closing their investments before the end of the financial year.

For founders it’s a race to line up investors to agree and sign the fundraising paperwork including the term sheet, shareholders agreement and more.

Until all investors agree (or if you’re crowdfunding, you’ve hit your minimum target) the round can’t close. And if a startup’s raising from multiple investors (14 is the average on SeedLegals) there’s a high chance that one or more will hold up the deal.

What’s more, some investors, particularly those looking to maximise their tax free allowance for the year, will insist on seeing advance assurance from HMRC before they commit to closing. They need to see proof that your startup qualifies for SEIS or EIS.

So, what’s a founder to do?

The good news is that at SeedLegals we’ve automated everything you’ll need close your round online. And there are three things you can do right now to make sure you get your investment over the line before 5 April.

3 ways to close your investment before the end of the tax year

First, apply for SEIS/EIS Advance Assurance by 1 March at the latest. Approval can take up to six weeks. When you apply for Advance Assurance with SeedLegals, it usually takes around three to four weeks. Then you could try one of these strategies to close your investment fast:

1. Use a SeedFAST agreement to take cash now from your investors but do the actual funding round next year – it can take just one or two days to close a SeedFAST
2. Close a smaller round now on SeedLegals and activate Instant Investment so you can top up later on – it usually takes founders around one week to close this way
3. If your investors are friends and family, you can quickly close a Bootstrap round – these rounds usually close in three days

Let’s look at these three options in more detail:

1. Use a SeedFAST agreement to take cash now

SeedFAST agreements let you receive investment from your investors immediately and do the funding round at a later date.

SeedFASTs can be issued to investors at any time. They are an advanced subscription agreement – they allow investors to subscribe for shares in the next funding round in exchange for giving you the money now. It’s quick, inexpensive and fully compatible with SEIS/EIS so your investors get their tax benefits.

Importantly, you don’t need to set a valuation for your company. Instead, your investors receive their shares when you close your next funding round – and normally you’ll give the SeedFAST investors a discount.

If you’re in the position where you have a handful of investors lined up but not quite enough to reach your target, you can offer your investors a SeedFAST (it’s one per investment) instead.

SeedFASTs are quick and easy to create on SeedLegals – in just a few minutes, you can be ready to send the agreement to your investor to sign. Ready to get started? Try SeedLegals free for seven days

2. Close a smaller round now, activate Instant Investment to top up later

But what if you’ve already opened your round and have some investors committed and ready to close, but not the full amount you were hoping for?

Doing a funding round used to be a painfully slow 8 to 12 week process of drafting documents from scratch, and back-and-forth emails with documents full of tracked changes (and not to mention high legal fees). At SeedLegals, we’ve turned this into a seamless workflow, you can create all the agreements you need in just a few clicks.

We also have plenty of plenty of data to help you choose terms for your funding round based on what’s right for company – this can help you speed up negotiations and close in record time.

However, it can often be a difficult decision of whether to close a smaller amount now or wait for those final investors to commit – and those commitments might take much longer than expected.

That’s why we created Instant Investment – instead of waiting to reach your full initial target amount, you can close with the investors who are committed now, with a provision in the investment documents that allows you to accept additional Instant Investments later.

Before, this would have been a difficult decision – to accept less money in the round than you wanted – because you probably wouldn’t have been able to accept any new investment without doing a new funding round.

But with Instant Investment, you can send new investors a proposal after your round has closed in just a few clicks. When they’ve signed the agreement and transferred the money, SeedLegals takes care of the rest: issuing their shares and automatically syncing your cap table.
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3. Raise a Bootstrap round

Completing the legal paperwork for a funding round can take up to three months due to the back-and-forth negotiations with your investors. Professional investors often have a set of terms they want in the documentation, which can hold up the investment.

But when you’re fundraising from friends, family and people you know, usually they won’t have many requirements other than: ‘give me a fair deal, my share certificates and my SEIS tax benefits please!’

And that’s exactly why we designed our Bootstrap round: it allows you to quickly and inexpensively accept a small amount of money (it’s ideal for round of up to £100,000) without having to create and negotiate over long-form documents that just aren’t necessary at this stage in your business.

Talk to an expert

Not sure what strategy to use for your fundraising? Want to see how SeedLegals can help? Book a free call with one of our experts: