Unlocking Series A: What Every Founder Needs to Know Before They Start Fundraising

Insights from the Series A Unlocked event, co-hosted by VenturePath and Lewis Silkin

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The Reality of the Seed-to-Series A Jump

Insights from Ian Merricks, VenturePath & Polly Mears, Lewis Silkin

Here's a number that should stop every founder in their tracks: of all the companies that successfully raise seed funding, only 7% go on to raise a Series A.

Six thousand companies a year manage to raise pre-seed or seed capital. Just 470 make it to Series A. That drop-off — from seed to institutional investment — is the steepest cliff in the entire funding journey. Understanding why that gap exists is the first step to bridging it.

The core reason is a fundamental shift in what investors are looking for. At seed stage, passion carries you. An angel investor can look at a founder, believe in them personally, and write a cheque on conviction alone. That's a legitimate investment strategy when it's your own money.

VCs don't have that luxury. They are custodians of other people's capital — pension funds, institutional investors, limited partners they may never meet. The Canadian Pension Fund doesn't invest in founders it believes in. It invests in fund managers who follow strict rules about what kinds of companies they back. Those rules are called a thesis, and VCs cannot deviate from them no matter how compelling the founder in front of them is.

This means the job of getting to Series A is not about being more persuasive. It's about building an evidence base — demonstrable proof that your business matches what institutional investors are allowed to fund, and that their capital will generate the return their LPs are expecting.

Building Your Investor Proposition

The jump from seed to Series A is, at its core, a shift from narrative to evidence. At seed, a compelling story and a credible founder can be enough. At Series A, VCs need to see that your business is built on repeatable systems, defensible assumptions, and numbers that hold up to scrutiny.

The foundation of all of that is your financial model.

The Financial Model

This is where most early-stage founders are underprepared. At seed, your numbers are projections built on hope. At Series A, a VC will open your model and try to break it.

A Series A-ready financial model has:

• An assumptions tab: Every driver in your model — conversion rates, rep productivity, hiring ramp, churn — should be explicitly listed. If it's in your head, it's not in your model. VCs will stress-test these assumptions ruthlessly.

• Historic and forecast joined up: Founders often show a clean, beautiful forecast that bears no relationship to their messy actuals. That gap is a red flag. Join them into a single P&L and address the trajectory explicitly in your assumptions — why will performance improve, and what evidence supports it?

• 36 months of monthly P&L, plus annual years 4 and 5: Why five years? Because VCs investing under EIS or VCT structures have a three-year lock-in on tax treatment, meaning they're thinking about years four and five when they commit. The first two years of your model will look like a disaster — you've taken investment, ramped costs, and your P&L is decimated. That's expected. Year three is the first 'normal' year, and years four and five are what justify the return.

• Cash flow: Your model should show your worst-case cash position. If you're raising £5m and your minimum cash balance over 36 months is £300k — that might represent just two weeks of runway at a later stage. VCs need to see that your raise amount is calibrated correctly.

A practical starting point: before you touch your pitch deck, build the model. It's easier to run scenarios in a spreadsheet than to rewrite narrative, and the process will surface assumptions and inconsistencies you'll need to address anyway.

The Four Numbers You Need to Resolve

Once your model is solid, it becomes the foundation for the four numbers that sit at the heart of your investor proposition. Get these right, and you walk into every VC conversation with clarity and confidence.

Raise amount: Your model tells you this. Once you've run 36 months of monthly spend — headcount, marketing, product, overheads — you can flex the number up or down. Could you deploy a bit more? Would a bit less still get you where you need to go? The raise amount shouldn't be a guess; it should be the output of a model you can defend.

Valuation: This is where founders often either undersell themselves or pick a number out of thin air. A more credible approach is to anchor your valuation to comparable transactions in your sector. If five companies in your space have been acquired at around 10x revenue, that's your implied multiple — and it's your job to present that logic to the VC rather than expecting them to arrive at it themselves. Even tech-focused VCs will have seen wide ranges within a sector, so guide them. "We're raising at 10x our current ARR, which is consistent with these five recent exits in our space" is a far stronger position than "we think we're worth £20m."

Use of funds: Be specific. Which roles are you hiring? What does the marketing spend unlock? Which product investments are on the roadmap? This isn't just a narrative layer — it's the direct link between the raise amount and the model. VCs will probe it, and vague answers here undermine the credibility of everything else.

Investor return: This is the number most founders forget to make explicit — and it's arguably the most important one in the room. VCs are in the business of generating returns for their LPs. They're not just evaluating whether your business is good; they're evaluating whether their investment in your business is the best use of their capital right now.

So make the case for them. If you believe your five-year P&L, apply the industry multiple you've already established, and you get an implied exit value. That exit value, relative to the cheque they're writing today, is their return. Spell it out: "On our five-year forecast, at the multiples we've seen in this sector, we're projecting an exit that represents roughly 10x on your investment." That's what moves a VC from interested to convicted. Too many founders present a raise amount and a valuation and leave the VC to do that maths themselves — don't. Close the loop for them.

Taken together, these four numbers — raise, valuation, use of funds, and investor return — form a coherent, evidence-backed proposition that a VC can take to their investment committee. Adding evidence builds confidence. Confidence creates conviction. Conviction closes rounds.

Legal Readiness: The Issues That Kill Deals

Insights from David Willbe & Kathy Granby, Lewis Silkin

Legal due diligence at Series A is more rigorous than at seed — not because the rules changed, but because the cheque size warrants it. Any issue that surfaces during diligence will fall into one of four categories: fine, fix before close, fix after close, or walk away. Walk-away issues are extraordinarily rare. Fix-before-close issues are where deals stall, timelines slip, and leverage shifts dramatically.

The Cap Table

Investors are always going to look at your cap table. The transaction they're entering is, fundamentally, the exchange of money for a position on it. Despite this, errors in cap tables are alarmingly common.

What a clean cap table requires:

• Full legal names for every shareholder — not "Jeff", but the full name, or the legal name of the vehicle through which they invested

• Share counts by class — if you have multiple share classes, show them segregated

• A fully diluted view showing what everyone's percentage would be if all options were exercised

• Both the current percentage (shares outstanding) and the fully diluted percentage (shares plus all options)

The reason investors care deeply about fully diluted percentages: they're calculating whether you — the founder — will retain enough economic upside to stay motivated through multiple future rounds and eventually to an exit. If you'll be diluted to a point where the personal payoff doesn't justify the journey, that's a problem they'll flag early.

The Leverage Problem

One of the most damaging things that can happen in a fundraise is discovering a fixable legal issue during the process rather than before it.

A case in point: a company with minority shareholders in a US subsidiary discovered this issue only once investment was underway. The fix should have been simple — swap those shareholders into the parent company at a fair value of around 2% of the equity. Because it was discovered with a funding timeline in play, those shareholders understood their leverage. The opening ask was 10% — five times the fair value. The negotiation dragged on for a month past the expected close date.

The same issue, surfaced six months earlier with no urgency, would have been a quick, cooperative conversation. The lesson: do a clean-eyed legal review of your business before you're in a live process, not during it.

EMI Option Schemes

If you have key people you need to retain through growth and to an exit, an EMI (Enterprise Management Incentive) option scheme is the gold standard in the UK — assuming you qualify. EMI options offer capital gains tax treatment on any gain from the grant date, potentially including business asset disposal relief at the lowest available rate. They're also flexible: options can be structured to lapse on leaving, and exercise can be restricted to liquidity events only.

Common pitfalls to address before a Series A:

• Schemes set up without proper advice: Founders often don't realise that terms like "good leavers can keep vested options" trigger a requirement for an HMRC valuation every time someone leaves — which is administratively burdensome and costly.

• EMI compliance failures: Missing a single EMI qualification requirement can convert the entire gain from capital gains tax to income tax and National Insurance. Discovered at exit, that liability typically falls back onto the sellers.

• Global employees: US employees in particular require a separate 409A valuation and their own tax analysis. If you have an employee in the US who holds options, get specific advice on their treatment.

• Timing if you're currently fundraising: You can put a scheme in place while in investor discussions, but you must disclose the fundraise to your valuers. An undisclosed investment process invalidates an HMRC valuation letter.

Budget three months for a full EMI setup — four to six weeks for the valuation, two to four weeks for HMRC approval, with legal documentation running in parallel. Once you have the valuation letter, grants must be made within 90 days.

Term Sheets: Read Before You Sign

Insights from Tim Leeson & Peter Bates, Lewis Silkin

The word "non-binding" on a term sheet is technically accurate and practically misleading. Legally, you haven't committed to anything. Commercially, once a VC has taken a signed term sheet to their investment committee, changing the terms is very difficult — and founders who focus too much on "non-binding" often find themselves locked into terms they didn't fully understand.

The key principle: negotiate at the term sheet stage, not during long-form documentation. By the time you're in the detail of the legal docs, the VC has committed their committee, their time, and their credibility. Getting changes at that stage requires persuading them to go back to their investment committee, which rarely goes smoothly.

Governance vs. Economic Terms

Term sheet provisions broadly fall into two categories. Governance terms cover board composition, reserved matters (decisions requiring investor approval), information rights, and anti-dilution protections. Economic terms cover valuation, liquidation preferences, participation rights, and drag-along provisions.

Both categories are negotiable at term sheet stage. The difficulty is knowing which terms to push on and what to ask for — which is why getting a lawyer who knows the space to review a term sheet before you sign it is essential. Many firms with VC expertise will review a term sheet without upfront cost if there's a reasonable prospect of being instructed on the deal.

Founder Vesting

The term that founders most often get blindsided by is vesting. When a VC invests at Series A, they will typically require the founders' shares to become subject to a new vesting schedule — commonly three to four years, with a one-year cliff (no vesting in year one, then linear vesting thereafter).

For a founder who has spent five or seven years building the business, this feels like being asked to re-earn what you already own. That's not an unreasonable characterisation.

The key points to understand:

• You can negotiate this. A common outcome is that 50% of your shares are treated as already vested (reflecting your years of prior service), with only 50% subject to the new vesting schedule.

• Good leaver vs. bad leaver provisions matter enormously. A "bad leaver" — someone who leaves due to gross misconduct, fraud, or a criminal offence — should expect to forfeit unvested shares. But the definitions need to be tight. Scenarios like being pushed out by the board, health reasons, or a founder selling early should not be treated the same as misconduct, and standard templates don't always distinguish them clearly.

• The investor's perspective is legitimate. A VC who has just committed £2m to your business has a genuine concern about what happens if you leave 12 months later. Vesting provisions protect the investor — and to some extent, your co-founders. The negotiation is about calibrating it fairly, not eliminating it.

Practical Advice for Bootstrapped Founders

If you're capital-constrained and dealing with a term sheet from a well-resourced institutional investor, the power dynamic can feel uncomfortable. A few points of reassurance:

First, good law firms in the VC space will typically review a term sheet and flag the big issues without charging upfront fees, on the basis that they'll be instructed if the deal proceeds. Firms known in this space are worth approaching directly.

Second, and more important: never try to manage disclosure. If there's a secret shareholder, a piece of litigation, an IP ownership question, or anything else that might surface in diligence, surface it yourself — early and proactively. Investors who discover issues late are investors who walk. Investors who are told about issues early and see you handling them competently are often willing to proceed.

Third: treat your data room as an ongoing discipline, not a pre-deal sprint. The organisations that navigate funding most smoothly are the ones who maintain their documents in order throughout the life of the business.

The Bigger Picture

The common thread across all three of these conversations — investor readiness, legal preparation, and term sheet negotiation — is the same: what separates the 7% is not luck or timing, it's preparation.

The founders who raise Series A successfully don't do it by being more persuasive in the room. They do it by having already done the work that VCs need to see: the financial model that holds up to stress-testing, the cap table that's clean and complete, the legal affairs that don't surface surprises mid-process, the term sheet that's been reviewed by someone who knows what to push back on.

None of this preparation is glamorous. None of it replaces the need to have a good business with genuine traction. But for the founders who do have a good business — and there are far more of them than the 7% figure suggests — the gap between having that business and successfully communicating it to institutional investors is largely a matter of doing the groundwork described here.

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These insights were drawn from three roundtable discussions held at the Series A Unlocked event, co-hosted by VenturePath and Lewis Silkin. The sessions covered investor readiness, legal preparation, and term sheet negotiation for founders approaching Series A.