Venture capital funding rounds can be more complicated compared to seed and early series rounds. This is Part 2 of our guidance on the basics to consider.

1. Employee and founder equity

As you engage with investors, you should have an idea about how much equity is or will be available for employees, whether under an EMI option scheme or through some other form of employee share scheme.

An investor will often want the option scheme included in the capitalisation table for the purposes of calculating the amount of equity which they receive (meaning that only the existing shareholders suffer the dilutive effect of the options). Be aware of dilution for you and investors but also make sure you have sufficient options to properly incentivize employees.

Before speaking to investors, if your option scheme is not yet set up formally, make sure you have a good idea of basic terms like percentages, vesting periods, exercise dates (exit or ongoing), good/bad leaver terms. Investor won’t mind if you implement the options post funding, provided the key terms are agreed. Tip: also check option dilution doesn’t leave you below critical voting or board seat thresholds.

Lastly check your tax situation. Otherwise your employees might be in for a surprise!

2. Term sheets

This is the first doc you will sign with your new VC. Although it might say non binding in respect of some term, our advice is treat it as thought it’s a binding document, because it generally difficult to re-negotiate key commercial terms later without appearance of bad faith or worse VC having second thoughts.

There are many term sheet examples available publicly on websites like Techstars, Y combinator, Passion Capital and British Venture Capital Association.

Get an experienced legal advisor to look at the termsheet before you sign!

3. Roles and responsibilities

Funding rounds are time consuming. Plan ahead and allocate topics between the team. We’ll say no more on this, because it sounds rather like going back to school and our experience is that clients always get there in their own way!

4. Timetable

Closing an investment round can take longer than anticipated. In a worst case delays in closing lead can to missed targets and renegotiation or termination of the funding deal. It’s sometimes possible to fix a timetable at termsheet stage with sufficient headroom. Preparing due diligence in advance can help to bank some time so that when hold ups arise later in the process you are already ahead of timetable. you’ll be in a good position to respond quickly and keep the process moving towards completion on the agreed timetable.

5. Advisors

Finally, start talking to advisors early. They have experience and will help you through the process. Ensure you choose the right advisors for your company’s size and culture and also fix scope and costs at the outset.


We hope this was helpful! Get in touch if you need more detail