How to close your funding round before the end of 2023

This year is whizzing by. If you’re keen to close an investment fast, we want to help. In this post, we explain the funding hot-spots in the calendar year and how to make the most of them, and other strategies to take an investment without doing a full funding round.

Contents

• Make the most of the 3 funding hot-spots
• Push to close a deal now? Or use agile fundraising?
• Get your SEIS/EIS Advance Assurance
• Compile your Term Sheet
• Close-by-Christmas not going to happen? Here’s what to do
• Go agile with SeedFAST
• For more complex deals before a round, use a convertible loan note
• Top up a previous round
• Fundraising? Yule sleigh it

Make the most of the 3 funding hot-spots

At SeedLegals, we close one in every six early-stage funding rounds in the UK – more than any other service. From the data we have from all these deals, we’ve observed three spikes of fundraising activity every year:

1. End of the tax year
   The weeks leading up to 5 April are busy, particularly for SEIS and EIS rounds. Investors are keen to get deals closed to make sure they get the maximum tax relief in the current tax year.
2. Just before summer holidays
   Traditionally (at least before the pandemic), many investors take time off in August. If your deal isn’t done by the end of July, it probably won’t be closed until September or later, hence why founders and investors are keen to complete before August.
3. Run-up to Christmas
   Similar to the summer holiday shutdown, this spike in activity appears to be so that founders and investors can get all the paperwork done and deals closed before taking a break for the festive weeks. Another advantage of sorting out your deals before Christmas is that you’ll be ahead of other companies who aim to close in Q1 next year, before the end of the tax year.

You could use the momentum at these three busy times to close your funding round – or you could take a more agile approach…

Push to close a deal now?
Or use agile fundraising?

If you want to make the most of the momentum to close your fundraising round before Christmas, then it pays to have everything you need lined up – in particular, your S/EIS Advance Assurance and Term Sheet. There’s more on these below.
If some investors are ready to invest now and others are moving more slowly, you could use an agile fundraising method, such as our SeedFAST or SeedNOTE, or top up a previous funding round.

First, let’s take a look at two must-haves if you want to close a round before Christmas…

Get your SEIS/EIS Advance Assurance

A first step for many founders when fundraising is to apply for SEIS/EIS Advance Assurance. Many investors will only consider investing in a company that’s got this Assurance because it means they’ll get tax relief on their investment. Advance Assurance sets you apart from other companies as a very attractive investment opportunity. Here’s how it works:

The Enterprise Investment Scheme and Seed Enterprise Investment Scheme allow investors to claim tax relief on the money they invest in your company. Investors can claim Income Tax relief at 50% for SEIS investments of up to £200,000 each tax year. And for the EIS, it’s 30% on investments of up to £1million.

Since the EIS was introduced by the Government in 2012, over 46,000 UK companies have received investment through EIS and SEIS worth over £26 billion. In the 2020/2021 tax year, funding via these schemes totalled over £1.6 billion (source: HMRC). These huge amounts prove that the schemes make investing in early-stage companies an attractive prospect for investors.

At SeedLegals, our expert team can review your S/EIS application in three days or less. We can help you get your Advance Assurance fast – our success rate is 98%. Here’s how:

MORE: Apply for S/EIS Advance Assurance

Compile your Term Sheet

When you start fundraising, you’ll need to prepare a Term Sheet: it’s a summary of the investment terms and a very handy tool to have ready when you’re approaching investors.

Here’s why it’s smart to prepare your Term Sheet before you meet investors:

• Know what you’re asking for
  When you compile the Term Sheet, you have to think through exactly what you want. This can kickstart your conversations and give you the upper hand in negotiations with investors because you’ll know exactly what to ask for.
• Show you’re serious
  Investors who put money into early-stage businesses need to know the founders are reliable. By having your Term Sheet ready, you’ll show a level of professionalism that will set you apart from the rest.
• Be ready to follow up
  If you’ve pitched to an investor and it seemed to go well, it can be frustrating to hear nothing for a week… or a fortnight… If you have your Term Sheet ready, you can follow up by pinging over the document soon after your pitch.
• Generate some FOMO
  When you send your Term Sheet to investors, this can imply you’re negotiating with other investors. Show potential investors you’re keen to move quickly – give them the FOMO (fear of missing out).

On SeedLegals, you can create your Term Sheet in minutes. Select from options for each term (there’s guidance built in) and your document is generated automatically. You can then send it to potential investors via SeedLegals
It’s normal to do plenty of negotiation about the Term Sheet because it includes so many details such as the valuation, vesting schedules, reporting requirements and founder salaries.

💡 Tip: It’s worth putting effort in to get your first investor on board – we’ve noticed that when founders have got this first signature, it’s generally easier to get subsequent investors to sign (and therefore close the round faster).

But does preparing your Term Sheet really help you speed up closing your round? Our data says yes: on average, companies close their funding round 30 days after sending out their Term Sheet.

Close-by-Christmas not going to happen? Here’s what to do

What if you’ve got your S/EIS Advance Assurance and a beautifully clear Term Sheet but some of your potential investors are moving at snail’s pace while others want to jump in right now? Is Christmas cancelled? Will you even close before the end of the tax year? Are you going to have to re-mortgage to tide over your company?? 😱

No – if you have investors ready now, this is where agile fundraising comes in handy. We want founders to have flexibility in their fundraising so we built ways for you to take one-off investments before or after a round. Next, we’ll look at how to do this…

Go agile with SeedFAST

You can issue a SeedFAST (our ‘advanced subscription agreement’) to new investors at any time. They allow investors to sign up to get shares in an upcoming funding round, in exchange for giving you money now – super handy to tide you over between funding rounds.

For a SeedFAST, you don’t set a valuation. Instead, your investors get their shares (usually at a discount) when you close your next funding round. SeedFASTs are carefully worded, easy to understand and – importantly – comply with SEIS and EIS rules. Because SeedFAST is so straightforward, it’s normal for investors to sign them within 24 to 48 hours of receiving the document. This means you get an instant injection of cash without weeks or months of negotiations. We explain more in this article:

MORE: SeedFAST – how ASAs work

For more complex deals before a round, use a convertible loan note

If you have an investor who’s ready to invest before your round and wants interest or a return of capital, you can use our convertible loan note, SeedNOTE.

☝ Note: SeedNOTEs / convertible loan notes aren’t compatible with S/EIS investments.

Investors like convertible loan notes because if your company is insolvent or looking to liquidate or wind up, debt ranks higher than equity. And this type of agreement gives investors their money back if your company fails to raise a ‘qualifying funding round’.

MORE: SeedNOTE – how convertible loan notes work

Top up a previous round

If you have some investors ready to sign now but some who aren’t, with SeedLegals you can build into your funding round the ability to top up the round after it’s closed without having to get further consent from your existing investors.

With our Instant Investment, you add terms to your round to allow you to close your round when you reach an amount you’re happy with (or the amount you’ve been able to raise right now) and then top up later, within agreed limits.

MORE: Instant Investment – how to top up your funding round

Fundraising? Yule sleigh it*

The festive season can be stressful enough – with careful preparation for your round and agile fundraising, you can take in a significant amount of money now to take away the stress of closing with all your investors by Christmas. We ho-ho-hope you’re successful!

Did you close by Christmas? Or did you use agile fundraising? Let us know, we love to hear from you: hello@seedlegals.com

To find out more about how SeedLegals can help with your fundraising legals, book a free chat with one of our experts.

* Apologies for the awful puns, how terribly rude(olf) of us.