The run up to 5th 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 is, 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 require proof that your startup qualifies under the scheme.
So, what’s a founder to do?
The good news is that at SeedLegals we’ve automated everything you’ll need close your round on one platform. And there are 3 things you can do right now to make sure you get your investment over the line before 31st March.
3 ways to ensure you close your investment before the tax year end:
Receive cash now from your existing investors but do the actual funding round next year by creating a SeedFast ( ~ 1 day), or
Close a smaller round now on SeedLegals and activate Instant Investment so you can top up anytime later on ( ~ 1 week)
or, if your investors are friends and family you can close a quick Bootstrap round ( ~ 3 days)
Here are the options in more detail:
1. Use a SeedFAST agreement to get cash now
SeedFAST agreements let you to receive investment from your investors immediately and do the funding round at a later date. It can be issued to investors at any time, and allows investors to subscribe for shares in the next funding round, in exchange for their giving you money now. It’s quick, inexpensive and fully compatible with SEIS/EIS so your investors get their tax benefits. Crucially, you don’t need to set a valuation for your company, instead, your investors will receive the shares when you close your next funding round – normally with a discount to the new investors.
So 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 SeedFAST agreements (it’s one per investment) instead. You can create and issue a SeedFAST agreement to an investor to sign in minutes on SeedLegals. Sign up here to get started.
2. Do a smaller round ASAP, top up at your leisure with Instant Investment
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?
With SeedLegals you can turn what used to be a 8-12 week process of drafting documents from scratch, Microsoft Word track changes and long email threads (and not to mention high legal fees) into a seamless process, creating all the agreements you need in a few clicks.
We also have tonnes of data that can help you set the dials on your funding round based on your company – to speed up your 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 investor commitments to come in – commitments that might take much longer than expected.
That’s why we pioneered Instant Investment – allowing you accept new investment into your startup at any time.
That means that instead of waiting to reach your full initial target – you can close the commitments that you have now, but with a provision that allows you to accept additional Instant Investment later.
Before, this would have been a difficult decision of accepting less money in the round than you thought you needed – because you likely wouldn’t be able to accept any new investment without doing a new funding round.
But with Instant Investment – you can send out to new investors a proposal even after your round has closed in just a few clicks. Once they’ve signed and deposit the money – SeedLegals takes care of the rest – issuing them shares and automatically syncing your cap table.
3. Raise a Bootstrap Round
Closing out the legal paperwork of a fundraise can take up to 3 months due to back-and-forth negotiations with your investors. Professional investors often have a series of terms they will regularly require to be part of the documentation, which can hold up the investment.
But when raising from friends, family and people you know, they usually won’t have many requirements other than “give me a fair deal, my share certificates and my SEIS please!”.
And that’s exactly what we designed our Bootstrap Round for, it allows you to quickly and inexpensively accept a small amount of money (it’s ideal for round of up to £100k) without creating and negotiating over long form documents that just aren’t needed at this stage in your business.