February 6, 2020 by STEP Conference

To take your startup to the next level, you’ll need external capital to really grow and scale. Once you’ve found investors, you’ll need to negotiate and complete the investment deal. Those investors probably have previous deal experience to draw on, but you may be navigating this path for the first time.


Investors will want to know how much money you want to raise. Deciding how much to raise is a balancing act. 

You could raise only what you need for next stage of your startup’s development. Raising a conservative amount means you’ll probably use it with care and your startup is not overfunded. But you should raise a little extra capital to give you enough headroom for unexpected costs. If you raise too little, you might have to run another investment round again soon, which will be hard work, time consuming and expensive. 

Or, you could try to raise as much as you can to so that your startup has enough money to scale and become profitable. You won’t have to fundraise too often and face the uncertainty of a future funding round, especially if the funding environment gets more difficult. But you need to know what you want the money for. Over-funding without a plan can lead to problems. Investors are likely to seek more advantageous terms the more you raise. 

Look at your monthly expenses, add in costs of hiring new employees, marketing, development and any other expenses that you anticipate and then update your monthly expenses. Then multiply the amount of your monthly expenses by how long you want the money to last for. 


How much you can raise in an investment round will also depend on how much the investors think your company is worth. 

You may be tempted to avoid raising too much money at your current valuation if you think that the company will be worth significantly more in the short to medium term. But the higher the valuation you push for, the tougher the terms investors will seek so they can achieve their desired returns.

The more high-risk the investment, the more equity investors will expect to get a meaningful return and to have a significant level of influence over your company.

The general approach taken by VCs and investors is that you should raise enough money to last 12-18 months. If you try and raise money more frequently than this, it will be hard to demonstrate that you are hitting milestones and to justify your new valuation for the financing round. 


Preparation is key. Consider the investor’s valuation of your company and the level of dilution the founders and early investors will experience. Learn the founder-friendly terms that you should try to include in your term sheet and those investor-friendly ones of which you should be wary. 

Some of the favourable terms that VC investors typically seek include:

  • a liquidation preference (the right to be paid out first if the company is liquidated or sold)
  • the right to appoint a board member 
  • protective provisions which allow it to control some types of business decisions (e.g. a veto on declaring dividends)
  • anti-dilution protection to protect the investor’s percentage ownership of the company in future financing rounds
  • vesting schedules for founder shares 
  • implementing share incentive plans

Be wary of accepting terms that are too investor-friendly for your business in your Seed or Series A financing rounds, as investors in future financing rounds may seek to get the same terms. 


A term sheet (Memorandum of Understanding, MOU or Heads of Terms) is a short document setting out the key commercial terms of the investment in user-friendly language. It includes some standard legal language about things like confidentiality and resolution of disputes and will state that the parties will enter into full agreements in future. Get legal advice to help you review the term sheet and negotiate the deal before you sign it – founders often make the mistake of speaking to lawyers after a term sheet has been signed.

The investor will usually prepare the term sheet for you to review, and many VCs have their own standard forms. You may need to evaluate different term sheets if you have various investors interested in funding your venture. 


After agreeing the term sheet, an investment deal usually involves a share subscription agreement, shareholders’ agreement and restated constitutional document (e.g. articles of association).

The investors will start the due diligence process when they will review and verify information about your company. The scope of review varies between investors and yours will send you a list of documents they want to review. 

Don’t expect this phase to be straightforward just because you’ve already negotiated the term sheet. The documentation is much more detailed and further negotiations are common on items that were left out of, or not agreed at, the term sheet phase and mechanical matters. This stage typically takes several weeks.


You’ll agree the closing date with your investors when you will sign the documents and receive the money.  This date is usually a few days after agreeing the documents or is linked to the satisfaction or waiver of conditions (e.g. completion of outstanding due diligence, employment agreements with key employees and transferring intellectual property rights from founders and developers to the company). 

Send the final investment documents to everyone who needs to sign them in advance of the closing date.

Provide the company’s bank details to the investors in advance of the closing date so that they can set up the bank transfers to pay the purchase price for the shares to the company.


On completion, the investors pay the agreed purchase price for the shares to the company and the company issues shares to the investors. The parties also exchange the signed and dated original documentation (e-signature solutions, such as those provided by our partner, DocuSign,  can hugely increase the efficiency of the signing process).

After completion, there’ll be some housekeeping matters to attend to. These include updating the shareholders’ register of the company with the investors’ details and submitting any necessary notifications to the companies’ registrar.

…and breathe…before your next round!

By Patrick Rogers

Co-founder and CEO of Clara, a legal operating system that digitises and automates startup legal expertise. 

Clara empowers founders, ensures a startup’s venture-readiness and provides unmatched portfolio management and market intelligence to its investors. Clara is addressing pain points felt by startups and investors alike when it comes to startup legals – and is doing so on a global basis. 

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