According to the U.S. Bureau of Labor Statistics, approximately 20% of new businesses fail within their first year, and about half don’t make it past the five-year mark. For many, the line between joining that statistic and achieving breakout success is drawn at the first investment round.
Securing that first check is a significant moment – exchanging a piece of your company for the capital that can fuel explosive growth. But the path from pitch to signed agreement is riddled with challenges.
This guide breaks down the investment journey into five essential steps, offering a strategic roadmap for founders ready to take their venture to the next level.
Preparation and Positioning
It’s never too early to build your “Ideal Investor Profile.” Just as you define your ideal customer, you must define the investor who brings more than just capital. You’re seeking a partner who offers industry expertise, a valuable network, and alignment with your long-term vision.
Start by networking with purpose. Attend industry-specific conferences and actively engage on platforms like LinkedIn. Warm introductions from mutual contacts are invaluable. Before any meeting, conduct thorough research. Scrutinise a potential investor’s portfolio, their stated investment philosophy, and how they’ve supported other founders post-investment. An investor’s track record is the best predictor of your future relationship.
Choosing your Funding Structure
In Europe and the US, most early-stage funding comes in two primary forms. Convertible instruments such as convertible loans and SAFEs are valued for their speed and simplicity. These instruments act as debt that converts to equity at a later funding round, allowing startups to secure capital quickly without setting formal valuations. A typical convertible loan might range from £100,000 to £500,000 for seed-stage companies.
Equity financing represents the traditional route where investors buy direct stakes in exchange for cash. While requiring upfront valuation agreements, it remains standard for larger rounds – Series A investments typically start at £2,000,000 and beyond. The choice depends on your startup’s stage, valuation confidence, and capital requirements.
Navigating Term Negotiations
Once an investor is interested, they will present a term sheet. This non-binding document outlines the proposed conditions of the investment. It’s the blueprint for your future partnership, covering valuation, equity stake, investor rights, and control. Understanding every clause is critical. This isn’t a time for timidity; it’s the moment to negotiate a fair deal that won’t cripple your ability to raise future rounds or run your company.
Due diligence is where investors put your business under a microscope. Being prepared for this intense scrutiny is non-negotiable and dramatically accelerates the funding timeline. Have your capitalisation table ready, showing clear ownership breakdowns including founder equity and employee stock ownership plans. Ensure your corporate structure properly protects key assets and intellectual property, including registered trademarks, patents, and essential contracts.
Think of it as a two-way street. While they vet your business model, financials, and market position, you must assess their suitability as a long-term partner. Presenting this information clearly and confidently demonstrates competence and reduces friction in the process.
Inking the Deal
The term sheet evolves into a final, legally binding investment agreement. This is one of the most important documents your company will ever sign. It codifies every detail of the deal: the investment amount, the shares issued, investor rights, and governance structures.
Key negotiation areas centre on company valuation, which determines equity pricing and ownership dilution. A startup valued at £10,000,000 raising £2,000,000 surrenders 20% ownership before accounting for investor rights. Critical terms include board seats, voting rights, anti-dilution provisions, and “drag-along” or “tag-along” rights affecting founder control and minority shareholder protections. Engaging experienced startup lawyers is essential to protect your interests and ensure the agreement is sound.
Embarking on the investment journey is a defining challenge. Navigating due diligence, negotiating term sheets, and finalising agreements requires strategic preparation and expert guidance. By understanding these key steps, founders can move forward with confidence, transforming a high-stakes process into a launchpad for success.
About the Author: Stefan Surina is founder of Eldison, where he advises startups and growth companies on strategic financing and market expansion. Having navigated multiple funding rounds across European and US markets, Stefan brings practical experience to the complexities of venture capital relationships. His expertise spans early-stage investment structuring, due diligence processes, and post-investment governance frameworks that preserve founder vision whilst delivering investor returns.