Raising Venture Capital as a UK Founder
SAFE notes, priced rounds, QSBS benefits, EIS/SEIS implications, and what VCs expect from your Delaware C-Corp
Pre-Seed Standard
QSBS Tax Exclusion
Typical Timeline
Required by VCs
Why VCs Require Delaware C-Corps
The Industry Standard for Venture-Backed Companies
If you are raising venture capital in the US, you will almost certainly need a Delaware C-Corporation. This is not a suggestion — it is a hard requirement from virtually every institutional VC fund. Here is why:
Legal Framework
- Delaware General Corporation Law (DGCL) is the most developed corporate statute in the US
- Court of Chancery: specialized business court with expert judges (no juries)
- Decades of case law provide predictability on corporate governance disputes
- Every US law firm is familiar with Delaware corporate law
Preferred Stock Provisions
- DGCL allows flexible share class structures
- Liquidation preferences, anti-dilution rights
- Board seat provisions and protective covenants
- Drag-along and tag-along rights
QSBS Eligibility
- Section 1202 IRC: up to $10M capital gains exclusion
- Only available for C-Corp stock (not LLCs, not S-Corps)
- Major incentive for US-based investors
- Makes your company more attractive to angels and VCs
M&A & Exit Readiness
- Acquirers expect Delaware entities
- Standardized merger mechanics under DGCL
- Clean path to IPO (all major exchanges accept Delaware corps)
- Reduces legal friction and due diligence costs at exit
Pre-Seed & Seed: SAFE Notes
The Standard Instrument for Early-Stage Fundraising
The SAFE (Simple Agreement for Future Equity), created by Y Combinator, is the dominant instrument for pre-seed and seed fundraising. It is not a loan — it is a promise to issue equity in a future priced round. SAFEs are simple, fast, and cheap to execute (no interest, no maturity date, no board seats).
How a SAFE Works
An investor gives you money today. In return, they receive the right to convert that investment into equity at a later date, typically when you raise a priced round (Series A). The conversion happens at a discount to the Series A price, based on either a valuation cap or a discount rate (or both).
Valuation Cap
- Sets a maximum valuation at which the SAFE converts
- If your Series A is above the cap, SAFE investors convert at the cap (getting more shares)
- Example: $8M cap, Series A at $20M → SAFE converts at $8M
- Standard for most pre-seed SAFEs today
Discount Rate
- SAFE investors get shares at a % discount to Series A price
- Common discount: 20% (investor pays 80% of Series A price)
- Less common now; most SAFEs use cap only
- Some SAFEs use cap + discount (investor gets better of the two)
Post-Money vs Pre-Money SAFEs
In 2018, Y Combinator updated the SAFE to a post-money format. This is a critical distinction:
| Feature | Post-Money SAFE (Current YC) | Pre-Money SAFE (Old Format) |
|---|---|---|
| Dilution clarity | Investor knows exact % ownership | Unknown until priced round |
| Multiple SAFEs | Each SAFE dilutes only founders, not other SAFEs | SAFEs dilute each other (complex) |
| Calculation | % = Investment / Post-money cap | Depends on total SAFE + round size |
| Example | $500K at $5M cap = 10% ownership | $500K at $5M cap = variable % |
| Industry preference | Standard (2018+) | Legacy (still used sometimes) |
MFN (Most Favored Nation) Clause
If you issue SAFEs to multiple investors over time, earlier investors may get an MFN clause. This means if a later SAFE has better terms (lower cap or higher discount), earlier investors can retroactively adopt those terms. This protects early investors who commit before you have traction.
Typical Pre-Seed / Seed SAFE Terms (2026)
| Stage | Raise Amount | Valuation Cap | Instrument |
|---|---|---|---|
| Pre-seed (idea/MVP) | $250K–$1M | $3M–$8M | Post-money SAFE |
| Seed (product-market fit) | $1M–$3M | $8M–$15M | Post-money SAFE or priced seed |
| Seed extension | $500K–$2M | $10M–$20M | SAFE or convertible note |
Series A: Priced Round Basics
Your First Priced Equity Round
A Series A is your first "priced round" — meaning the company receives a formal valuation, issues preferred stock, and creates a detailed set of investor rights. This is a significant milestone with much higher legal and structural complexity than a SAFE round.
Key Terms in a Series A Term Sheet
Liquidation Preference
- Typically 1x non-participating preferred
- Investors get their money back first in a sale
- After 1x, they convert to common and share pro rata
- Avoid participating preferred (double-dip)
Anti-Dilution Protection
- Broad-based weighted average (standard)
- Protects investors if future rounds are at lower valuation
- Full ratchet is aggressive (avoid if possible)
- Adjusts conversion ratio, not share price directly
Board Composition
- Typical: 2 founders + 1 investor + 0–1 independent
- Lead investor usually gets a board seat
- Board observer rights may be granted to other investors
- Aim to maintain founder control through Series A
Protective Provisions
- Veto rights on major decisions
- Issuing new shares, taking debt, selling company
- Changing charter or bylaws
- Standard and expected by all VC funds
Typical Series A Terms (2026)
| Parameter | Typical Range | Notes |
|---|---|---|
| Raise amount | $3M–$15M | Median ~$8M in 2025 |
| Pre-money valuation | $15M–$60M | Depends on traction and market |
| Dilution | 15%–25% | Including option pool increase |
| Option pool | 10%–15% | Post-money, set before investment |
| Legal costs (company) | $20K–$40K | Your startup pays this |
| Legal costs (investor) | $10K–$25K | Often capped; company may reimburse |
Key Documents in a Series A
- Term Sheet — Non-binding outline of deal terms (2–5 pages)
- Stock Purchase Agreement (SPA) — The actual purchase of preferred shares
- Investor Rights Agreement (IRA) — Registration rights, information rights, pro rata rights
- Voting Agreement — Board composition, drag-along rights
- Right of First Refusal & Co-Sale (ROFR) — Transfer restrictions on founder shares
- Certificate of Incorporation (Amended) — Updated to reflect new share classes
QSBS: The $10 Million Tax Exemption
Why US Investors Love Delaware C-Corps
Qualified Small Business Stock (QSBS) under Section 1202 of the Internal Revenue Code is one of the most powerful tax incentives in the US startup ecosystem. It allows eligible investors to exclude up to $10 million (or 10x their cost basis, whichever is greater) in capital gains from federal income tax when they sell their shares.
The Bottom Line for UK Founders
QSBS does NOT benefit you directly as a UK tax resident — it is a US tax benefit. But it makes your Delaware C-Corp significantly more attractive to US angel investors and VCs, because their gains on your stock could be entirely tax-free.
QSBS Requirements
Entity Requirements
- Must be a domestic C-Corporation
- Gross assets must not exceed $50M at time of stock issuance
- Must be an active business (not holding company, finance, real estate, etc.)
- At least 80% of assets must be used in active business
Holding Requirements
- Stock must be held for at least 5 years
- Stock must be acquired at original issuance (not secondary market)
- Excludable gain: up to $10M or 10x basis
- Federal + many state capital gains taxes excluded
Why QSBS Matters for Your Fundraising
When pitching US investors, the QSBS eligibility of your Delaware C-Corp is a selling point. Consider the math:
| Scenario | Without QSBS | With QSBS |
|---|---|---|
| Investment | $100,000 | $100,000 |
| Exit value (50x return) | $5,000,000 | $5,000,000 |
| Capital gain | $4,900,000 | $4,900,000 |
| Federal tax (23.8%) | $1,166,200 | $0 |
| Net proceeds | $3,833,800 | $5,000,000 |
For UK founders: while you cannot claim QSBS on your own shares (you are not a US taxpayer), your company's QSBS status is a competitive advantage when fundraising. Mention it in your pitch deck and investor conversations.
UK EIS/SEIS Implications
A Critical Structural Decision for UK Angel Investors
If you plan to raise money from UK-based angel investors, you need to understand EIS and SEIS — two powerful UK tax incentive schemes that can make or break your ability to attract British capital.
SEIS (Seed Enterprise Investment Scheme)
- 50% income tax relief on up to £200,000 invested
- Capital gains tax exemption on SEIS shares held 3+ years
- CGT reinvestment relief: 50% exemption on gains reinvested
- Company must have <£350,000 gross assets
- Company must be <3 years old
- Maximum £250,000 raised per company under SEIS
EIS (Enterprise Investment Scheme)
- 30% income tax relief on up to £1M invested per year
- Capital gains tax exemption on EIS shares held 3+ years
- Loss relief: offset losses against income tax
- CGT deferral relief on gains reinvested
- Company must have <£15M gross assets
- Maximum £12M lifetime EIS/VCT investment
The Problem for UK Founders with Delaware C-Corps
Many UK angel investors will only invest through EIS/SEIS because the tax relief significantly de-risks their investment. A £100,000 SEIS investment effectively costs the investor only £50,000 after tax relief. Without this incentive, UK angels may pass on your deal entirely — or demand different terms to compensate for the lost tax benefit.
Possible Solutions
Option 1: UK Ltd as Parent Company
- UK angels invest in the UK Ltd (EIS/SEIS eligible)
- UK Ltd owns 100% of the Delaware C-Corp
- US operations run through the subsidiary
- More complex structure but preserves EIS/SEIS
- US VCs may require a "flip" later (restructuring UK parent out)
Option 2: Skip EIS/SEIS, Go Direct
- Raise from US angels and VCs directly into Delaware C-Corp
- Skip UK angel funding or accept non-EIS UK investors
- Simpler structure, no flip needed later
- QSBS benefits attract US investors instead
- May limit your UK fundraising options
Option 3: Raise SEIS/EIS First, Then Flip
- Start as a UK Ltd, raise SEIS/EIS from UK angels
- When ready for US VC, do a "corporate flip"
- UK Ltd becomes subsidiary, new US parent created
- Common but requires careful tax planning
- Existing EIS/SEIS relief may be preserved (verify with tax adviser)
Due Diligence Checklist — What VCs Will Ask For
Get Your Data Room Ready Before You Start Pitching
When a VC sends a term sheet, due diligence begins immediately. Having a well-organized data room shows professionalism and accelerates the closing process. Missing or disorganized documents can delay your round by weeks or kill the deal entirely.
Corporate Documents
- Certificate of Incorporation (filed with Delaware Secretary of State)
- Amended and Restated Certificate of Incorporation (if applicable)
- Corporate Bylaws
- All Board Consents and Minutes (from incorporation to present)
- Written Stockholder Consents
- Certificate of Good Standing (Delaware)
- Foreign qualification certificates (if registered in other states)
Equity & Cap Table
- Fully diluted cap table (including all SAFEs, options, warrants)
- Stock Purchase Agreements for all founders
- 83(b) election filings (with IRS receipt/proof of filing)
- Vesting schedules for all equity holders
- Stock option plan (if adopted) and all option grant agreements
- All SAFE and convertible note agreements
- 409A valuation report (if options have been issued)
Intellectual Property
- IP Assignment Agreements (all founders, employees, contractors)
- CIIA (Confidential Information and Invention Assignment) agreements
- Patent applications or registrations (if any)
- Trademark registrations
- Open-source license compliance audit
Financial & Tax
- Financial statements (P&L, balance sheet, cash flow) — monthly for current year
- Federal tax returns (Form 1120) for all filed years
- State tax returns (if applicable)
- Delaware franchise tax payment receipts
- Bank statements (last 6–12 months)
Contracts & Legal
- Material customer contracts
- Vendor and service provider agreements
- Employment agreements (if any US employees)
- Contractor agreements
- Office lease (if any)
- Any outstanding litigation, disputes, or threatened claims
- Insurance policies (D&O, general liability)
Fundraising Timeline for UK Founders
Expect 4–6 Months from Start to Wire
Fundraising takes longer than most first-time founders expect. As a UK-based founder, you may face additional time due to time zone differences and the need to build US investor relationships from abroad. Here is a realistic timeline:
Month 1–2: Preparation
Build your data room with all corporate, financial, and legal documents. Create a compelling pitch deck (10–15 slides). Build your financial model (3–5 year projections). Identify 50–100 target investors. Get warm introductions through your network, accelerator alumni, or LinkedIn.
Month 2–4: Outreach & Pitch Meetings
Send cold and warm emails to investors. Aim for 30–50 first meetings. Follow up diligently. Expect 20–30% response rate on warm intros, 5–10% on cold outreach. Partner meetings at VC firms happen after 1–2 associate/principal meetings.
Month 4–5: Term Sheet & Due Diligence
Receive and negotiate term sheet(s). If you have multiple term sheets, you have leverage. Due diligence begins: investors review your data room, talk to customers, check references. Their lawyers draft the investment documents.
Month 5–6: Legal Docs & Closing
Negotiate and finalize legal documents (SPA, IRA, Voting Agreement, ROFR). Board approves the financing. Sign documents (electronic signature is standard). Wire transfer of funds into your US bank account. Typically 2–4 weeks from signed term sheet to wire.
UK-Specific Timeline Considerations
- Time zones: San Francisco is 8 hours behind London. Schedule investor calls for your late afternoon (their morning).
- Travel: Plan 1–2 trips to the US during fundraising. Many investors still want to meet founders in person, at least once. Use ESTA for trips under 90 days.
- Wire timing: International wires can take 2–3 business days. Ensure your US bank account is fully set up before closing.
- Legal coordination: You may need both US and UK counsel, especially if your structure involves a UK entity. Budget time for cross-border coordination.
Fundraising Calculators
Preparing to Raise Your First Round?
From corporate formation to cap table structuring to investment document review — get your legal house in order before you start fundraising. Schedule a consultation to discuss your specific situation.
Schedule a ConsultationSergei Tokmakov, Esq. — CA Bar #279869
Frequently Asked Questions
Can I raise US venture capital if I am based in the UK and not planning to relocate?
Yes. Many US VCs invest in companies where the founders are based outside the United States, especially for software and SaaS businesses where location is less critical. The key factors are: (1) your company is a Delaware C-Corp, (2) you have a credible path to a large US market, and (3) you can demonstrate that remote operation does not impede growth. That said, some investors prefer founders who are willing to relocate, and later-stage funds (Series B+) may push harder for US presence. For pre-seed and seed, being UK-based is rarely a deal-breaker.
Do I need a US lawyer for my fundraise, or can I use a UK solicitor?
You need a US attorney who specializes in venture capital transactions. Your investment documents (SPA, IRA, Voting Agreement, etc.) are governed by Delaware law and US securities regulations. UK solicitors, even corporate ones, are unlikely to have the specialized knowledge needed for US VC deal documentation. Top startup law firms include Cooley, Wilson Sonsini, Gunderson Dettmer, Fenwick & West, and Orrick. Many offer "deferred fee" arrangements where legal fees are deferred until your round closes. You may also need a UK tax adviser for the cross-border implications.
What is the difference between a SAFE and a convertible note?
Both SAFEs and convertible notes are instruments that convert to equity in a future priced round. The key differences: (1) A convertible note is a loan with an interest rate and maturity date, while a SAFE is not a loan — it has no interest and no maturity. (2) If a convertible note reaches maturity without a qualifying round, the investor can demand repayment. A SAFE has no such trigger. (3) SAFEs are simpler, shorter, and cheaper to execute. (4) In the US startup ecosystem, SAFEs have largely replaced convertible notes for pre-seed and seed rounds. UK investors may be more familiar with convertible loan notes (CLNs), which are the UK equivalent, but if you are raising into a Delaware C-Corp, use the standard YC SAFE.
Will raising VC funding affect my E-2 visa eligibility?
Potentially yes. The E-2 visa requires the enterprise to be at least 50% owned by nationals of a treaty country (the UK). When you raise VC funding from US investors, they receive equity in your company, which can dilute UK ownership below 50%. If UK nationals hold less than half the company's equity, the company may lose E-2 treaty enterprise status. Solutions include: (1) structuring dual-class shares where UK founders retain voting control, (2) ensuring UK nationals maintain >50% economic ownership through subsequent rounds, or (3) transitioning to O-1A before the dilution occurs. Discuss this with an immigration attorney before closing any round. See our Visa Options Guide for more details.
Should I raise from UK angels first (SEIS/EIS) or go straight to US VCs?
This depends on your structure and network. If you start as a UK Ltd, you can raise SEIS (£250K max) and EIS from UK angels with significant tax benefits for them, then do a "corporate flip" to a Delaware C-Corp when you are ready for US VC. If you incorporate directly as a Delaware C-Corp (which many US-focused founders prefer), your company is NOT eligible for SEIS/EIS. In that case, go directly to US angels and VCs who will benefit from QSBS instead. The hybrid approach (UK Ltd parent with Delaware subsidiary) preserves both options but adds structural complexity. There is no universally correct answer — it depends on where your investors are, your long-term market focus, and how soon you expect to raise institutional US VC. See our UK Ltd vs US C-Corp guide for a detailed comparison.