Structuring for Scale: Legal Essentials Before Raising VC Funding

Nov 25
5 min read

As your company prepares to raise venture capital, the legal foundations you put in place become as critical as your pitch. Investors aren’t just assessing your growth story - they’re assessing your structure, your documentation, and your ability to scale without friction. Clean ownership, protected IP, and coherent governance all become core to valuation, negotiation speed, and investor trust.

Polly Mears, Associate in Lewis Silkin’s Venture Capital team, shares practical guidance on how founders can get “legal ready” well before due diligence begins. These fundamentals reduce deal friction, prevent valuation drag, and show investors you can operate with discipline - giving you a real advantage when you open your round.

Raising venture capital isn’t just a milestone, it’s due diligence on you and your company. Investors test your story and your legal basics at the same time. Being “legal ready” removes friction, protects valuation, and signals you can scale with discipline.

Beyond the paperwork, investors bet on founders. They look for simple communicators who are flexible enough to pivot and have deep sector knowledge. Critically, founders must clearly articulate what their business does and why they can solve a problem better than anyone else. These traits build the trust needed for lasting partnerships and often outweigh other metrics.

1. Why legal readiness matters

It’s about speed and trust. When your paperwork is tidy and your structure is clear, investors can commit faster and on better terms. If documents are missing or messy, diligence slows and valuations suffer. Focus on three things: clear ownership, owned and assigned intellectual property, and simple, documented governance. If you’re UK‑based, line up SEIS/EIS eligibility and, where relevant, HMRC advance assurance, this de‑risks early cheques and speeds decisions. Build this early so fundraising doesn’t stall later.

2. Clean up your cap table

Your cap table is the single source of truth for who owns what. Keep it current and make sure it matches your legal records. Clear any informal equity promises and convert old notes before you open a round. Where possible, consolidate legacy instruments into simple, standard documents. Confirm every share, option, and warrant is properly authorised and issued.

Using SAFEs or convertibles? SAFEs are widely used in the US but UK investors typically prefer ASAs or priced rounds. ASAs must convert into shares within a set timeframe, and their caps or discounts can interact with existing notes. Understand how instruments stack, caps, discounts, and MFN clauses can compound. Model a few scenarios so you can explain post‑money ownership simply and avoid surprises.

3. Employee options: align talent with growth

An option plan helps you hire and retain great people. Standardise documents, size the option pool to market, and issue grants promptly with signed agreements and board approvals. Use clear vesting schedules and simple exercise mechanics to reduce admin.

Mind local rules. In the UK, EMI option schemes are often the most tax‑efficient, record valuations, approvals and HMRC notifications on time to preserve EMI status. Non‑compliant options or missing approvals create headaches for employees and investors. Hiring across borders? Check local rules on vesting, tax and enforceability. For a deeper dive, read “Getting Your Employee Option Scheme Right.”

4. Governance investors expect

Investors want light‑touch, reliable governance: predictable board process, documented decisions, and clear delegations. Keep minutes and resolutions current. Make sure major actions such as, equity issuances, option grants, IP assignments, and material contracts, are properly approved and recorded. Good habits make diligence smoother and avoid re‑papering.

Expect post‑investment norms like protective provisions and updated board composition. Term sheets lock in key rights, liquidation preference, anti‑dilution, pre‑emption (pro‑rata), drag/tag‑along, and information rights, so knowing what’s market keeps negotiations efficient. Showing you can balance founder agility with accountability reassures investors.

5. Compliance and risk: remove deal breakers

Compliance isn’t bureaucracy, it’s risk removal. Make sure IP is owned by the company (not founders or contractors). Update contractor agreements to include IP assignment and confidentiality. Check open‑source licences and keep required notices. If you’re regulated or data‑heavy, ensure privacy, security and sector rules are covered in your policies and contracts.

Get the basics in order. Keep charter documents, stock ledgers, option approvals, key contracts, NDAs, and employment agreements complete and easy to find. If you have subsidiaries or operate cross‑border, keep local filings current. For UK companies, reconcile Companies House filings (PSC register, SH01s, statements of capital, confirmation statements) to the cap table, and ensure option grants tie back to plan rules and approvals. A tidy, diligence‑ready data room with organised documents and clear financial models doesn't just reduce uncertainty, it streamlines due diligence and can accelerate the investment process.

7. Beyond Legal: Other Key Investor Considerations

Beyond legal readiness, investors are making a bet on people and markets. They back founders who are flexible, professional, and possess deep sector knowledge, but the ability to clearly articulate the business and its value proposition is just as critical. While some founders resist early revenue to focus on product, most investors prioritise evidence of commercial validation, as revenue traction proves a real market exists. Similarly, be realistic about your market's size; build a bottom-up case based on addressable customers and credible pricing, as inflated numbers erode trust. A focused strategy that concentrates on a core market segment to refine product-market fit before expanding demonstrates a scalable approach. Finally, remember that warm referrals from a trusted network dramatically increase your chances of securing a meeting and serious consideration, making them far more effective than cold outreach.

6. Be diligence‑ready: a quick checklist

Before you open a round, run a quick “founder audit.”

Confirm structure: Is your corporate form and jurisdiction fit for venture investment?
Reconcile ownership: Match the cap table to board approvals and issuances.
Secure IP: Check assignments and contractor agreements.
Update governance: Bring minutes and consents up to date.
Finalise options: Approve the plan and issue grants.
SEIS/EIS: Confirm eligibility and, where relevant, secure HMRC advance assurance.
Companies House: Reconcile filings (including PSC register and SH01s) to the cap table.
Organise docs: Build a logical, diligence‑ready data room.

These steps shorten timelines, cut negotiation friction, and protect valuation.

Acronyms used:

IP: Intellectual property.
SEIS: Seed Enterprise Investment Scheme (UK).
EIS: Enterprise Investment Scheme (UK).
HMRC: HM Revenue & Customs (UK tax authority).
SAFE: Simple Agreement for Future Equity.
ASA: Advance subscription agreement (UK‑style advance equity instrument).
MFN: Most‑favoured‑nation clause (matching best terms).
EMI: Enterprise Management Incentive (UK tax‑advantaged options).
NDA: Non‑disclosure agreement.
PSC: Persons with significant control.
SH01: Companies House share allotment form.
TAM: Total Addressable Market

Becoming legally ready isn’t just preparation for a fundraise - it’s the foundation that boosts investor confidence and supports the next stage of your company’s journey.

About Lewis Silkin

Lewis Silkin supports ambitious founders and leadership teams by protecting their ideas, people, and future throughout the scale-up journey. The firm delivers expert legal advice across areas critical to high-growth businesses, including corporate funding, IP, disputes, employment, and international immigration law. With offices in the UK, Ireland, and Hong Kong, and global alliances, Lewis Silkin is driven by a focus on creativity, technology, and innovation, ensuring you have the legal framework to achieve your ambitious growth targets.

Lewis Silkin is a strategic partner to VenturePath. VenturePath members - the Lewis Silkin team is on-hand to partner with you on your legal needs while scaling, raising or exiting.