{"id":1179,"date":"2022-01-04T04:49:31","date_gmt":"2022-01-04T04:49:31","guid":{"rendered":"https:\/\/uk.legalvision.com.au\/?p=1179"},"modified":"2025-11-12T12:51:30","modified_gmt":"2025-11-12T12:51:30","slug":"approaching-seed-stage-round","status":"publish","type":"post","link":"https:\/\/legalvision.co.uk\/startups\/approaching-seed-stage-round\/","title":{"rendered":"Approaching a Seed-Stage Round in the UK"},"content":{"rendered":"\n<p><span style=\"font-weight: 400;\">Suppose you are a start-up business owner trading through a private limited company, and you hope to raise money from outside investors, including your friends and family. Naturally, you will want to know what options you have and what the legal implications of outside financing might be. This article will walk you through the three main financing sources during a seed-stage round.&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400;\">The primary sources of seed financing are:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><span style=\"font-weight: 400;\">friends and family;\u00a0<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400;\">angel investors; and<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400;\">accelerators.<\/span><\/li>\n<\/ul>\n\n\n\n<div class=\"box box--icon box--info\">\n<p><span style=\"font-weight: 400;\">Note: we do not cover P2P financing (also called crowdfunding) in this article. Likewise, this only covers seed round funding. Series A, Series B, and Series C funding is covered elsewhere.&nbsp;<\/span><\/p>\n<\/div>\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400;\">The Lifecycle of Company Financing&nbsp;<\/span><\/h2>\n\n\n\n<p><span style=\"font-weight: 400;\">Like people, companies have different stages in their life. In general, they are the:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><span style=\"font-weight: 400;\">launch phase;<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400;\">growth stage;\u00a0<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400;\">maturity stage; and<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400;\">decline stage;\u00a0<\/span><\/li>\n<\/ul>\n\n\n\n<p><span style=\"font-weight: 400;\">Depending on the industry and market you are operating in, the numbers can vary considerably. However, the types of financing available tend to be consistent.&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400;\">This article discusses the primary sources of financing for businesses in the launch phase (also known as the seed stage, as the money you raise will nourish your burgeoning business).&nbsp;<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Seed Stage of Development<\/h3>\n\n\n\n<p><span style=\"font-weight: 400;\">You may have already launched the first version of your product during this stage, such as a new piece of software or consulting service. This is known as the alpha version of your product. Or you may need additional funds to properly launch your business, such as hiring employees or leaving your full-time job to focus entirely on your business.&nbsp;<\/span><\/p>\n\n\n\n<div class=\"box box--icon box--info\">\n<p><span style=\"font-weight: 400;\">This is where seed investing comes in. Seed capital investments tend to be for less than \u00a31m and are usually non-leveraged investments, which means the money raised is through some form of equity financing.&nbsp;<\/span><\/p>\n<\/div>\n\n\n\n<p><span style=\"font-weight: 400;\">You should note that the government is keen to incentivise investing in start-ups. Many of your investors may benefit from tax relief either through the:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><span style=\"font-weight: 400;\">Enterprise Investment Scheme (EIS);<\/span><span style=\"font-weight: 400;\"> or<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400;\">Seed Enterprise Investment Scheme <\/span><span style=\"font-weight: 400;\">(SEIS).<\/span><\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400;\">Sources of Seed-Stage Financing<\/span><\/h2>\n\n\n\n<h3 class=\"wp-block-heading\"><span style=\"font-weight: 400;\">Friends and Family<\/span><\/h3>\n\n\n\n<p><span style=\"font-weight: 400;\">As the phrase suggests, one of the most common funding sources for start-ups during a seed-stage round is your friends and family. This can also extend to members of your professional network. In addition to providing you with financing, they can be a valuable source of insight.&nbsp;<\/span><\/p>\n\n\n\n<div class=\"box box--icon box--idea\">\n<p><span style=\"font-weight: 400;\">It is common to bring friends and family on board as advisors or directors of the company, especially if they have experience running their own businesses.&nbsp;<\/span><\/p>\n<\/div>\n\n\n\n<h3 class=\"wp-block-heading\"><span style=\"font-weight: 400;\">Angels&nbsp;<\/span><\/h3>\n\n\n\n<p><span style=\"font-weight: 400;\"><a href=\"https:\/\/legalvision.co.uk\/startups\/angel-investors\/\">Angels<\/a> refer to high-net-worth individuals (HNWIs) outside your friends, family, and professional networks. These HNWIs invest their money into your company, usually in exchange for equity.\u00a0<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span style=\"font-weight: 400;\">Accelerators&nbsp;<\/span><\/h3>\n\n\n\n<p><span style=\"font-weight: 400;\">Accelerators, or start-up accelerators, are platforms or groups of investors that try to source and finance a variety of innovative business ideas, usually through small business competitions. These competitions will be assessed by the directors or partners of the accelerator platform.&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400;\">If your business is successful in these competitions, you will be given access to financing as well as mentoring and exposure to industry experts. They may also provide you with legal and financial advice.&nbsp;<\/span><\/p>\n\n\n\n\n<a href=\"#content-next\"\n   class=\"block p-4 mt-10 text-xl font-bold text-center text-white no-underline bg-gray-800 rounded-t-xl\">\n    Continue reading this article below the form\n    <i class=\"text-xl fa-regular fa-arrow-down\"><\/i>\n<\/a>\n<div class=\"px-6 pt-10 pb-12 mb-10 text-center bg-gray-100 rounded-b-xl sm:px-12 test\">\n    <div class=\"mb-8 text-2xl font-bold text-orange\">\n        Need legal advice?\n        <br>\n        <span class=\"text-lg not-prose\">\n                            Call <a href=\"tel:+448081968584\" class=\"not-prose\">0808 196 8584<\/a> for urgent assistance.\n                <br>\n                Otherwise, complete this form, and we will contact you within one business day.\n                    <\/span>\n    <\/div>\n\n    \n\n<div class=\"not-prose flex justify-center text-left gform_input_bg_white    \">\n    <script>\nvar 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This is because:<\/span><\/p>\n\n\n\n<ol class=\"wp-block-list\">\n<li><span style=\"font-weight: 400;\">there are certain tax relief schemes only available to start-up investors providing equity financing (e.g., the EIS or SEIS); and<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400;\">equity financing, while riskier, carries more potential benefits for your investors because the value of their investment is directly tied to the success of your business \u2014 the more your business grows, the more their investment will grow.<\/span><\/li>\n<\/ol>\n\n\n\n<p><span style=\"font-weight: 400;\">In general, <a href=\"https:\/\/legalvision.co.uk\/startups\/equity-financing-startup\/\">equity financing<\/a> is where you issue shares in your company to investors in exchange for the money they give your company. Usually, your share of ownership in the company will become diluted because they now own a proportionate amount.\u00a0<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400;\">Conditions of Equity Financing&nbsp;<\/span><\/h2>\n\n\n\n<p><span style=\"font-weight: 400;\">Investors will often want more than just shares in your company. Their investment is considered high-risk, so they will usually seek additional protections.<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span style=\"font-weight: 400;\">Different Classes of Shares<\/span><\/h3>\n\n\n\n<p><span style=\"font-weight: 400;\">There are different ways to raise equity financing. One method is by issuing different classes of shares such as preference shares rather than ordinary shares. By way of explanation, shares are of a different class if their rights (like when their holder is entitled to dividend payments) differ from another class of shares.<\/span><\/p>\n\n\n\n<div class=\"box box--icon box--info\">\n<p><span style=\"font-weight: 400;\">By default, you issue all shareholders with ordinary shares when you incorporate your company. Absent any other class of shares, this means that all shareholders have equal voting and dividend payment rights.&nbsp;<\/span><\/p>\n<\/div>\n\n\n\n<p><span style=\"font-weight: 400;\">While issuing preference shares is typical for later-stage equity fundraising, seed-stage round investors tend to avoid them as the two main tax-relief schemes do not cover them.&nbsp;<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span style=\"font-weight: 400;\">Shareholder Voting Rights<\/span><\/h3>\n\n\n\n<p><span style=\"font-weight: 400;\">As part of equity financing, your investors may want you to issue shares with special voting rights. Effectively, when voting as a shareholder, their shares will have more weight per share than yours. This is a way to protect their rights as a<\/span><span style=\"font-weight: 400;\"> minority shareholder.<\/span><\/p>\n\n\n\n<div class=\"box box--icon box--info\">\n<p><span style=\"font-weight: 400;\">For example, suppose you have a company with 100 ordinary shares, and you are the sole owner. A colleague of yours, Joe, has said he will give you \u00a310,000 in exchange for 50 shares, but he wants his shares to have twice the voting power.&nbsp;<\/span><span style=\"font-weight: 400;\">You would then have to create a <\/span><span style=\"font-weight: 400;\">new class of shares <\/span><span style=\"font-weight: 400;\">with a new name.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Joe will have the same voting power as you at the shareholder level but, all else being equal, will receive only half as much in dividend payments.&nbsp;<\/span><\/p>\n<\/div>\n\n\n\n<p><span style=\"font-weight: 400;\">You should note that you and your investors are free to negotiate the exact nature of the rights associated with different classes of shares. However, if your investors wish to take advantage of the tax-relief schemes, practically, their options will be restricted.<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span style=\"font-weight: 400;\">Appointment to the Board of Directors<\/span><\/h3>\n\n\n\n<p><span style=\"font-weight: 400;\">Another condition of the equity financing may be that your investors will secure a place on the board of directors. This means they will have a say in the day-to-day operations of the business, such as how the company:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><span style=\"font-weight: 400;\">borrows money;<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400;\">raises additional equity financing; and<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400;\">makes significant capital expenditures like buying a machine.\u00a0<\/span><\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading\"><span style=\"font-weight: 400;\">Share Transfer Restrictions<\/span><\/h3>\n\n\n\n<p><span style=\"font-weight: 400;\">Investors may require you to amend your company\u2019s articles of association to:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><span style=\"font-weight: 400;\">prohibit the transfer of your shares to anyone else; or\u00a0\u00a0<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400;\">specify when they are entitled to transfer or sell their shares.\u00a0<\/span><\/li>\n<\/ul>\n\n\n\n<p><span style=\"font-weight: 400;\">This is to ensure that their interests and the interests of you and your company align.&nbsp;<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span style=\"font-weight: 400;\">Contractual Protections<\/span><\/h3>\n\n\n\n<p><span style=\"font-weight: 400;\">Investors may require you to sign contracts in your personal capacity giving certain promises and certifying that the information you have given about your company is true. Such agreements are called warranties, disclosures, or limitations. The effect is that you, in your personal capacity, will be liable for any misstatements, misrepresentations, or breaches of the agreements. This protects investors and ensures that you, as the founder, cannot hide behind your company\u2019s limited liability.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400;\">Formalities for Equity Financing<\/span><\/h2>\n\n\n\n<p><span style=\"font-weight: 400;\">Generally, there are certain formalities you will need to follow, such as ensuring you have the right as a director to issue certain shares or when you will need shareholder approval.&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400;\">Additionally, creating new classes of shares or imposing share transfer restrictions will require you to amend your company\u2019s articles of association. In many cases, you may even adopt an entirely new set of articles.&nbsp;<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400;\">Key Takeaways<\/span><\/h2>\n\n\n\n<p><span style=\"font-weight: 400;\">Seed-stage funding is the earliest stage of outside financing. Common sources of funding in a seed-stage round include your friends, family, and business network. Additionally, you may seek out investments from high-net-worth individuals or professional investors (called angel investors). Furthermore, accelerators are a new and innovative way for you to secure funding as a start-up. Finally, equity financing may be subject to certain conditions, which you should be aware of.<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400;\">If you need help raising capital for your business, our <a href=\"https:\/\/legalvision.co.uk\/startup-lawyers-lp\/\">experienced startup lawyers<\/a> can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today at <a href=\"tel:+448081968584\" class=\"AVANSERnumber dynamic-number\">0808 196 8584<\/a> or visit our <\/span><a href=\"https:\/\/legalvision.co.uk\/membership\"><span style=\"font-weight: 400;\">membership page<\/span><\/a><span style=\"font-weight: 400;\">.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400;\">Frequently Asked Questions<\/span><\/h2>\n\n\n\n<div class=\"schema-faq wp-block-yoast-faq-block\"><div class=\"schema-faq-section\" id=\"faq-question-1641270990506\"><strong class=\"schema-faq-question\">Where can I raise seed-stage funding?<\/strong> <p class=\"schema-faq-answer\">Typically, start-ups seek to raise money from their friends, family, business network, and angel investors.\u00a0<\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1641270997151\"><strong class=\"schema-faq-question\">How do I raise seed money?<\/strong> <p class=\"schema-faq-answer\">Most seed-stage round investors will give your company money in exchange for ownership, which is called equity. They will also seek additional protections.\u00a0<\/p> <\/div> <\/div>\n<div class=\"not-prose m-feedback-prompt\">\n    <!-- Thumbs up\/down bar -->\n    <div class=\"m-feedback-prompt__main\">\n        <div class=\"m-feedback-prompt__title\">Was this article helpful?<\/div>\n        <div>\n            <!--span class=\"m-feedback-prompt__button--text\">Thanks!<\/span-->\n            <button type=\"button\" class=\"m-feedback-prompt__button m-feedback-prompt__button--yes\"\n                    data-analytics-link=\"feedback-prompt:yes\" aria-label=\"Agree\">\n                <i class=\"fa-regular fa-thumbs-up fa-3x\"><\/i>\n            <\/button>\n            <button type=\"button\" class=\"m-feedback-prompt__button m-feedback-prompt__button--no\"\n                    data-analytics-link=\"feedback-prompt:no\" aria-label=\"Disagree\">\n                <i class=\"fa-regular fa-thumbs-down fa-3x\"><\/i>\n            <\/button>\n        <\/div>\n    <\/div>\n\n    <!-- Feedback form -->\n    <div class=\"m-feedback-prompt__form\">\n        <div class=\"m-feedback-prompt__form--thanks \">\n            <div>Thanks!<\/div>\n            <p>\n                We appreciate your feedback \u2013 your submission has been successfully received.            <\/p>\n        <\/div>\n        <form id=\"contact-form\" class=\"m-feedback-prompt__form--form\" action=\"\" method=\"post\">\n            <input type=\"hidden\" id=\"authenticity_token\" name=\"authenticity_token\" value=\"4d339a24e7\" \/><input type=\"hidden\" name=\"_wp_http_referer\" value=\"\/api\/wp\/v2\/posts\/1179\" \/>            <input value=\"https:\/\/legalvision.co.uk\/startups\/approaching-seed-stage-round\/\" type=\"hidden\" name=\"currenturl\"\n                   id=\"currenturl\">\n            <input value=\"Approaching a Seed-Stage Round in the UK\" type=\"hidden\" name=\"currenttitle\"\n                   id=\"currenttitle\">\n            <label>\n                <!-- display on thumbs-up -->\n                <span class=\"m-feedback-prompt__feedback m-feedback-prompt__feedback--yes\">\n                    Can you tell us <span class=\"font-semibold\">why<\/span> you found it helpful?\n                <\/span>\n\n                <!-- display on thumbs-down -->\n                <span class=\"m-feedback-prompt__feedback m-feedback-prompt__feedback--no text-lg\">\n                    How can we better improve this article?\n                <\/span>\n                <textarea name=\"feedbackmessage\" id=\"feedbackmessage\" required><\/textarea>\n            <\/label>\n\n            <div class=\"m-feedback-prompt__form--error\" id=\"form-submit-error\"><\/div>\n            <button id=\"submit-contact-form-button\" type=\"submit\" name=\"commit\" class=\"m-feedback-prompt__form--submit\"\n                    data-analytics-link=\"feedback-prompt:submit\">\n                Submit            <\/button>\n        <\/form>\n    <\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>Suppose you are a start-up business owner trading through a private limited company, and you hope to raise money from outside investors, including your friends and family. Naturally, you will want to know what options you have and what the legal implications of outside financing might be. This article will walk you through the three<a href=\"https:\/\/legalvision.co.uk\/startups\/approaching-seed-stage-round\/\">Continue reading <span class=\"sr-only\">&#8220;Approaching a Seed-Stage Round in the UK&#8221;<\/span><\/a><\/p>\n","protected":false},"author":13461,"featured_media":527,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_relevanssi_hide_post":"","_relevanssi_hide_content":"","_relevanssi_pin_for_all":"","_relevanssi_pin_keywords":"","_relevanssi_unpin_keywords":"","_relevanssi_related_keywords":"","_relevanssi_related_include_ids":"","_relevanssi_related_exclude_ids":"","_relevanssi_related_no_append":"","_relevanssi_related_not_related":"","_relevanssi_related_posts":"1001,177011,1816,1238,4497,173206","_relevanssi_noindex_reason":"","editor_notices":[],"footnotes":""},"categories":[31],"tags":[105,173,203,204,205],"class_list":["post-1179","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-startups","tag-startup-founder","tag-startup-business","tag-capital-raising","tag-seed-financing","tag-friends-and-family-round"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.1.1 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Approaching a Seed-Stage Round | LegalVision UK<\/title>\n<meta name=\"description\" content=\"Are you a startup founder wanting to raise capital from friends and family? 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