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Investor not sent their funds? No Pay, No Play lets you remove them from the round

Published:  Aug 4, 2023
Anthony Rose
Anthony Rose

Co-Founder and CEO

Suzanne Worthington
Suzanne Worthington

Senior Writer

What happens if an investor is holding up your funding round by not sending you their money? We’ve added No Pay, No Play as a feature to funding rounds on SeedLegals so you can remove an investor who’s holding up your round without everyone having to re-sign all the deal documents.

No Pay, No Play is another great reason to do your funding round on SeedLegals. In this post, we explain why you might need it and how to use it, and we recap on more features of SeedLegals funding rounds which help protect both founders and investors.

In this post

Gain from our experience of thousands of funding rounds

One of the things I love most about SeedLegals is how we’ve productised legals. By that I don’t mean we’ve built templates – I mean that from every funding round, we learn how to improve our products for the benefit of others.

When we see something go wrong in a funding round – an investor goes AWOL, investor signs documents but doesn’t send funds, investor pulls out at the last minute – we work out how to improve the workflow and legals to avoid that problem from happening to anyone else in future. Or if it does, to make it easier to resolve.

When you do your funding round on SeedLegals, you benefit from the enhancements to our services and legal documents that we’ve made over thousands of funding rounds. As a founder, you can be sure that we’ve got your back. And it’s not just about protecting founders – equally, our documents are designed to protect investors too if things go wrong.

That’s why we introduced No Pay, No Play. Here’s what it is and how it works:

No Pay, No Play

Our SeedLegals data shows a clear trend for more investors in a funding round. That’s likely a combination of founders approaching angel investors before or instead of going to VCs, as well as SeedLegals empowering founders to use our platform to lead on sending out the term sheet, adding investors and driving the round to completion.

With more investors in a round, it’s more likely that an investor might sign the Term Sheet, get added to the Shareholders Agreement but then go silent and never sign. Or, sign the Shareholders Agreement and not send the money. We’ve seen founders waiting months for one or more investors to send funds, holding up the closing of the round for everyone.

In cases like this, it’s a challenge to remove the AWOL investor from the round: you have a partially signed Shareholder Agreement with their name on it, you can’t just remove them. You might need to un-sign everyone and then ask everyone to sign again. Every time we see this situation, it’s stressful and time-consuming for the founders, the other shareholders and investors. But why does it need to be so hard?

It doesn’t. Say hello to No Pay, No Play, a new feature where we automatically add wording to the Shareholders Agreement that defines a 10 business day grace period, triggered when the board approves completion of the round. If an investor doesn’t send their investment money within the grace period, you can remove them from the round. Nobody needs to re-sign the documents, but you must notify the other investors to let them know about the removal. Then, everything then continues without the AWOL investor. It’s our elegant solution to a problem that was causing too much stress.

No Pay, No Play wording is automatically included in Seed & Series A+ funding rounds that were opened on SeedLegals starting 1st August 2023.

💡 Tip: With Instant Investment enabled on the round, if the investor does eventually come through, you can add their investment as a top up to the round.

No Pay, No Play is just one of the many benefits of doing your funding round on SeedLegals. Here are a few other unique SeedLegals features which help protect you and your investors.

You Snooze, You Lose

Thanks to No Pay, No Play, if any investor goes AWOL in a funding round you can remove them easily. But what if they go missing later, when they’re a shareholder?

This is more common than you might imagine. For example, you send out a Shareholder Resolution to expand the share option pool… and some investors simply never bother responding.

In some cases, it isn’t a problem because you typically only need 50% or 75% shareholder majority or, where applicable, 50% investor consent. So if some minor investors don’t respond, it doesn’t matter because you have your majority anyway.

But in some cases when you depend on their vote, it can become a problem. That’s where You snooze, You Lose comes in. If the shareholder doesn’t respond within 15 business days, their consent is deemed given. Easy.

Sometimes, founders are so worried about not being able to reach shareholders to sign documents when they need to, that they use this as a reason to create an SPV (Special Purpose Vehicle) or nominee company to group multiple investors together to create a ‘clean’ cap table. Sure, you could do that. But we think in most cases it’s an unnecessary expense and might have unwanted side effects. We explain more in our post: What is a clean cap table? And why it’s probably not what you think

Sell some of your shares, pay just 10% CGT

As a founder, you put in huge numbers of hours at less than market salary. The big payoff could be years away. If only you could sell some of your shares when the opportunity arises, without having to get investor consent…

On SeedLegals you can. Here’s how: Sell some of your shares at any time, pay only 10% CGT

Get back unallocated share options

Investors pushed you to create a larger option pool than you need? For whatever reason, if there are unallocated options in your option pool at the time you sell your company, on SeedLegals you can specify that the unallocated options go back to you, the founders.

Read more in our post: How to get back unallocated options when you sell your company

Recoup your founder loan

Our data shows founders put in a median of £26,000 of their own money into the business (and sometimes much more). After all, no-one invests only based on a slide deck. You need to have a product design, built a prototype and have something tangible to show.

When doing a funding round on SeedLegals, it’s easy to specify that you can get your money repaid later as a founder loan, or turn it into equity so you’re diluted less in that or a future funding round.

Read more in our post: How to recoup money you put into your company

Create your Pitch for investors on SeedLegals

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For investors too

As well as helping and protecting founders, at SeedLegals we dedicate as much energy to help and protect investors.

We help companies get investment-ready – which for investors, means easier negotiations and faster deals. For example, we help founders build their cap table, understand their SEIS/EIS obligations, polish and share their pitch and more.

And we help protect investors by making sure they understand how they can benefit from shares with liquidation preference compatible with SEIS/EIS. Plus we include wording in deal documents that means the investor won’t lose their SEIS/EIS benefits if, for example, one or more founders quit, leaving that investor with more than 30% equity, which would be an SEIS/EIS disqualifying event. Our SEIS/EIS Compliance services makes it easy for you to send the SEIS3/EIS3 certificates to your investors promptly so they can claim their tax relief.

Nobody loves reading lengthy legals documents and trying to work out what they mean – which is why we display the key deal terms to all parties so you can see at a glance what’s being offered and what you’re signing up for. And, if you want to negotiate something else, our build-in commenting feature lets you chat directly on the SeedLegals platform to agree the deal terms, which is 10X faster than going back and forth with redlined Word documents.

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