UK Startup Fundraising: SEIS, EIS, SAFEs and How to Structure Your Round

Reviewed by the Legal Foundations editorial team. Last updated: March 2026.

Raising money for your startup is one of the most legally intensive things you’ll do as a founder. The documents involved are complex, the tax implications are significant, and the mistakes — dilution you didn’t intend, investors without advance assurance, a cap table that nobody can read — can haunt you for years.

This guide explains the key funding instruments available to UK startups, how the SEIS and EIS tax relief schemes work in practice, what documents you need, and what lawyers actually do during a fundraising round (and why you usually need one).

Table of Contents

Overview of UK Startup Funding Stages and Instruments

Most early-stage UK startups follow a broadly predictable funding journey. Understanding where you are on that journey determines which instruments are appropriate.

Pre-seed

At pre-seed, you’re typically raising from friends, family, and early angel investors — often before you have significant revenue or even a finished product. Amounts raised are usually £50,000–£500,000. The key instruments at this stage are:

  • SEIS investments — by far the most common mechanism for UK pre-seed rounds
  • Advance Subscription Agreements (ASAs) — bridge instruments that convert into shares at the next priced round
  • Convertible loans — less common in the UK than in the US but still used

Seed

At seed, you’re raising from angels and potentially early-stage VCs. Amounts range from £250,000 to £2 million. The main instruments are:

  • EIS investments (or a combination of SEIS and EIS if you qualify for both)
  • ASAs (still appropriate for some situations)
  • Priced equity rounds using share subscription agreements
Startup Fundraising Seis Eis Uk

Series A and beyond

By Series A, you’re typically raising £2 million+, and the round is led by a VC fund. At this level, the legal documentation is significantly more complex — term sheets, investor rights agreements, preference share structures, anti-dilution provisions, and drag-along/tag-along rights all come into play. You need specialist legal advice.

This guide focuses primarily on pre-seed and seed — the stages where SEIS/EIS and the right document choices make the biggest difference.

SEIS Explained: Who Qualifies, How Much You Can Raise, What Investors Get

The Seed Enterprise Investment Scheme (SEIS) is the UK government’s most generous tax relief scheme for startup investment. It’s designed to incentivise early-stage angel investment by offering investors substantial tax benefits in return for taking the risk on young companies.

What investors get under SEIS

  • 50% income tax relief on the amount invested (up to £200,000 per investor per tax year)
  • Capital gains tax exemption on profits from SEIS shares if held for three years
  • Loss relief against income tax if the investment fails
  • Capital gains reinvestment relief — if an investor sells another asset and reinvests the gain in SEIS shares, they can defer (and in some cases eliminate) the CGT on that sale

The combined effect is dramatic. An investor who puts £100,000 into your company gets £50,000 back via income tax relief. If the investment fails completely, loss relief means the effective cost could be as low as £27,500 for a higher rate taxpayer. This is why SEIS is so powerful for attracting angel investors: it significantly de-risks the downside.

Company requirements for SEIS

Your company must:

  • Be incorporated in the UK
  • Have been trading for less than three years at the time of the investment
  • Have gross assets of no more than £350,000 before the investment (increased from £200,000 in April 2023)
  • Have fewer than 25 full-time employees (or equivalent)
  • Not be a subsidiary of, or controlled by, another company
  • Carry out a qualifying trade (most trades qualify; excluded activities include financial services, property development, farming, and a few others)

How much can you raise under SEIS?

The lifetime SEIS limit is £250,000 per company (raised from £150,000 in April 2023). This is the total amount you can raise under SEIS, not a per-round limit.

SEIS shares

SEIS shares must be new ordinary shares. They cannot carry preferential rights to dividends or assets on a winding up.

EIS Explained: The Step Up from SEIS

The Enterprise Investment Scheme (EIS) is the bigger sibling of SEIS. It’s available to more mature companies and allows larger raises, but the tax benefits to investors are slightly less generous.

What investors get under EIS

  • 30% income tax relief on amounts invested (up to £1 million per investor per tax year, or £2 million if invested in “knowledge-intensive companies”)
  • Capital gains tax exemption on profits from EIS shares if held for three years
  • Loss relief against income or capital gains if the investment fails
  • Capital gains deferral — investors can defer CGT on gains from other assets by reinvesting in EIS shares

Company requirements for EIS

  • Be a UK company carrying out a qualifying trade
  • Have gross assets of no more than £15 million before the investment
  • Have fewer than 250 full-time employees (knowledge-intensive companies: 500)
  • Have been incorporated less than seven years before the first EIS investment (or 10 years for knowledge-intensive companies)
  • Not have previously received SEIS investment that means you’ve already reached the SEIS lifetime limit

How much can you raise under EIS?

Up to £5 million per year under EIS, with a lifetime limit of £12 million (£20 million for knowledge-intensive companies). These can be combined with SEIS — you can raise up to £250,000 under SEIS and then continue raising under EIS.

Using SEIS and EIS together

Many startups raise a SEIS tranche and an EIS tranche simultaneously or in quick succession. This is perfectly permitted. Typically, the SEIS allocation is filled first (it’s more attractive to investors), and once the SEIS limit is reached, remaining investment comes in under EIS.

SEIS/EIS Advance Assurance: What It Is and Why You Need It Before Pitching

Advance assurance is a letter from HMRC confirming that, subject to the investment taking place as described, your company will be eligible for SEIS or EIS relief. It’s not a formal approval — the actual tax relief is claimed later — but it’s a crucial piece of paper for investor confidence.

Why you need advance assurance before you pitch

Most experienced angel investors will ask whether you have advance assurance before committing to invest. Without it, they can’t be confident the investment will qualify for SEIS or EIS relief, which fundamentally changes the economics of the deal from their perspective.

Getting advance assurance before you pitch:

  • Demonstrates you’ve done the groundwork
  • Makes investors’ decisions simpler
  • Speeds up the process of receiving funds (investors don’t need to wait for confirmation)
  • Avoids the awkward situation of having agreed investment terms before discovering you don’t qualify

How to apply for advance assurance

You apply directly to HMRC using the SEIS/EIS advance assurance application process. The application requires:

  • Details about your company, its structure, and its trading activities
  • A business plan (HMRC reviewers need to understand what you do)
  • Details of the proposed investment structure
  • A cover letter explaining the business and making the case for eligibility

The cover letter matters more than most founders realise. HMRC reviewers process large volumes of applications, and a clearly drafted letter that addresses potential eligibility questions upfront gets processed faster and with fewer queries.

→ Use our free SEIS/EIS advance assurance cover letter template

How long does advance assurance take?

HMRC aims to process advance assurance applications within 30 days, but turnaround times vary. Apply well before you plan to start pitching — ideally eight to twelve weeks in advance.

Common advance assurance pitfalls

  • Excluded activities: If part of your business involves an excluded trade (property development, financial activities, etc.), your application may be refused or the excluded activity ring-fenced.
  • Control issues: SEIS and EIS rules have complex provisions around investment structures, control by investors, and share rights. Getting this wrong can invalidate the relief.
  • Changing the business: If your business model materially changes after you receive advance assurance, you should apply again.

SAFEs vs Advance Subscription Agreements (ASAs) — UK Context

In the US startup ecosystem, the SAFE (Simple Agreement for Future Equity) is the dominant instrument for pre-seed bridge funding. It’s a convertible instrument — investors put in cash now, and convert to equity at the next priced round, typically at a discount.

SAFEs don’t work well in the UK for a simple but important reason: they don’t qualify for SEIS or EIS relief. Because a SAFE doesn’t issue shares immediately, investors can’t claim the tax relief that makes early-stage UK investment so attractive. Using a US SAFE instrument means your UK investors lose access to 30–50% income tax relief. That’s a significant disincentive.

The UK equivalent: Advance Subscription Agreements

The Advance Subscription Agreement (ASA) is the UK-native equivalent of the SAFE. An ASA allows investors to invest now and subscribe for shares at the next priced round — but it’s structured to qualify for SEIS/EIS relief, provided it meets HMRC’s requirements.

Key ASA terms typically include:

  • Long-stop date: The date by which shares must be issued. If no priced round happens before this date, shares are issued anyway (usually at a pre-agreed valuation).
  • Conversion mechanics: How the ASA converts at the next round — usually at a discount to the round price (typically 15–25%).
  • Valuation cap: An upper limit on the valuation at which the ASA converts (protecting investors if the round is priced much higher than expected).
  • SEIS/EIS conditions: Conditions requiring HMRC advance assurance and appropriate share structures.

→ Use our free Advance Subscription Agreement template

Which should you use?

For UK startups raising from UK investors, the ASA is almost always preferable to a SAFE because of the SEIS/EIS advantage. If you’re raising from US investors who are familiar with SAFEs and not concerned about UK tax relief, a SAFE may be simpler — but get specialist advice first.

Share Subscription Agreements for SEIS/EIS Rounds

When you’re running a priced round — issuing new shares at a defined valuation — the investment document is a Share Subscription Agreement. This is the core legal document for equity investment.

A share subscription agreement typically covers:

  • The subscription: The investor agrees to subscribe for a specified number of shares at a specified price
  • Conditions to closing: What needs to happen before the investment completes (advance assurance, shareholder approval, etc.)
  • Warranties: Representations made by the company and founders about the state of the business (that financial information is accurate, that there are no undisclosed liabilities, no material litigation, etc.)
  • Investor protections: Information rights, anti-dilution provisions (in some cases), consent rights
  • SEIS/EIS compliance: Obligations on the company to maintain its qualifying status and cooperate with HMRC filings

In SEIS/EIS rounds, the agreement must be carefully structured to ensure the shares issued qualify for relief. This includes ensuring shares are ordinary shares with no preferential rights that would disqualify them.

→ Use our free SEIS/EIS share subscription agreement template

Founders Agreements and Cap Tables

The founders agreement

Before you take in any outside investment, you need a founders agreement. This is the document that governs the relationship between co-founders — who owns what, what happens if a co-founder leaves, how decisions are made, and what happens to a founder’s shares if the company is sold.

Specifically, a founders agreement should address:

  • Equity split: The percentage each founder owns and why
  • Vesting: Most founders should vest their shares over time (typically four years with a one-year cliff). Vesting protects all founders — if one leaves after six months, they shouldn’t walk away with 25% of the company.
  • IP assignment: A confirmation that all founders have assigned their intellectual property to the company (not kept it personally)
  • Roles and responsibilities: Who does what, and what decisions require unanimous agreement
  • Leaver provisions: What happens to a departing founder’s shares (typically: bad leavers lose unvested shares and may have to sell vested shares at cost; good leavers keep vested shares but may be obliged to sell at fair value)

Investors will expect to see a founders agreement — or will expect one to be put in place — before they invest. The absence of one is a red flag.

→ Use our free founders agreement template

The cap table

A cap table (capitalisation table) is a spreadsheet showing who owns what in your company — founders, employees with options, convertible instrument holders, and investors.

A clean, accurate cap table is essential for:

  • Understanding dilution as you raise successive rounds
  • Modelling what each stakeholder receives in an exit scenario
  • Due diligence (investors will ask to see it)
  • Issuing options under an EMI scheme

Before your first outside investment, your cap table should accurately reflect:

  • All issued shares (including founders’ shares)
  • Any existing convertible instruments (ASAs, loan notes)
  • Any options granted (and their vesting status)
  • Reserved option pool (if any)

→ Use our free cap table template

Shareholders Agreements in Investment Rounds

Once investors are on your share register, the relationship between shareholders — and between shareholders and the company — is governed by a shareholders agreement (and the company’s articles of association).

A shareholders agreement in an investment context typically includes:

  • Reserved matters: Decisions that require investor consent (raising more debt, changing the business fundamentally, issuing new shares, selling the company)
  • Information rights: The company’s obligation to provide investors with regular management accounts and annual accounts
  • Anti-dilution protection: In some cases, investors negotiate rights to maintain their percentage ownership if shares are issued at a lower valuation in future rounds (a “down round”)
  • Pre-emption rights: The right to subscribe for new shares pro rata before they’re offered to new investors
  • Drag-along rights: If a majority of shareholders agree to sell the company, minority shareholders can be compelled to sell on the same terms
  • Tag-along rights: If founders or majority shareholders sell, minority shareholders have the right to sell at the same price and on the same terms
  • Leaver provisions: What happens to shares held by founders or employees who leave

At early stages (SEIS/EIS angel rounds), shareholders agreements are often relatively simple. By Series A, they become substantially more complex. Always have a lawyer review the shareholders agreement before signing.

Need legal advice? Get connected with a specialist solicitor →

What a Lawyer Does in a Fundraising Round

Many founders try to do their first round without a lawyer. Some get away with it. Many don’t — and the problems only become visible later, when the cap table is a mess, the share rights don’t qualify for SEIS/EIS, or the warranties in the subscription agreement are wider than anyone realised.

Here’s what a lawyer typically does in a fundraising round:

Pre-round preparation

  • Review existing corporate documents and identify issues
  • Advise on company structure, share classes, and option pool
  • Prepare or review the advance assurance application

During the round

  • Draft or review the subscription agreement, shareholders agreement, and constitutional documents (articles of association)
  • Negotiate investor terms
  • Ensure SEIS/EIS compliance
  • Advise on warranties and disclosure

Post-closing

  • File necessary Companies House returns
  • Issue share certificates
  • Update statutory books (register of members, register of directors)
  • Assist with the SEIS1/EIS1 compliance statements filed with HMRC (without which investors can’t claim relief)

A lawyer’s role isn’t just to produce documents — it’s to identify risks you haven’t thought of, ensure your structure is actually SEIS/EIS compliant, and protect your interests in the negotiation.

Need legal advice? Get connected with a specialist solicitor →

Common Fundraising Mistakes UK Startups Make

1. Pitching without advance assurance

Taking investor money without SEIS/EIS advance assurance is a gamble. If HMRC subsequently determines your company doesn’t qualify, investors will have to repay the tax relief they’ve claimed — and they will look to you for remedy. Get advance assurance first.

2. No founders agreement before investors come in

The time to negotiate between founders is before investors are in the picture. Investors will not want to see a dispute about founder equity mid-round, and some will walk if the founding team’s ownership isn’t properly documented and vested.

3. Ignoring dilution

Founders often focus on the valuation and forget to model the dilution. If you’re issuing shares at a £2 million pre-money valuation and raising £500,000, you’re giving away 20% of the company. If you also have an option pool to create, the dilution is greater. Model this before you agree terms.

4. Not understanding what you’re warranting

The warranties in a subscription agreement are representations about the state of your business. If they’re inaccurate, investors may have claims against you personally. Read them carefully and take legal advice.

5. Failing to keep the cap table updated

After each round, update your cap table immediately. Include all convertible instruments. A cap table that doesn’t accurately reflect reality will create problems at the next round — and potentially at exit.

6. Using a US SAFE for UK investors

As discussed above, SAFEs don’t qualify for SEIS/EIS relief. UK investors who receive a SAFE don’t get the tax benefits that make early-stage investment attractive. Use an ASA instead.

7. Misunderstanding pre-emption rights

Under the Companies Act 2006, existing shareholders have pre-emption rights — the right to be offered new shares before they’re issued to new investors. These rights can be disapplied by shareholder resolution, and your articles may modify them — but you need to deal with this properly at each round, or risk invalidating subsequent share issues.

8. Leaving HMRC filings until it’s too late

After a SEIS or EIS investment, the company must file compliance statements (SEIS1/EIS1) with HMRC within a defined period. If you miss the deadlines, investors can’t claim relief. Keep track of these deadlines and deal with them promptly.

Frequently Asked Questions

Can a founder invest in their own company under SEIS or EIS?

No. Founders who are connected with the company (which means they own more than 30% of the ordinary shares, or are employed by the company) cannot claim SEIS or EIS relief on their investment. SEIS and EIS are designed for external, independent investors.

What is the difference between SEIS and EIS?

SEIS is for very early-stage companies (less than three years old, gross assets under £350,000, fewer than 25 employees). It offers 50% income tax relief but has a £250,000 lifetime limit. EIS covers a broader range of companies (up to seven years old, gross assets under £15 million) and allows raises up to £5 million per year, but the income tax relief is 30%.

Does advance assurance guarantee my investors will get tax relief?

No. Advance assurance is a comfort letter from HMRC, not a guarantee. The actual relief is contingent on the investment taking place as described and the company maintaining its qualifying status. The formal claim for relief is made by investors after the shares are issued.

Can I raise SEIS money after I’ve already raised some EIS money?

Not in most cases. SEIS must precede EIS chronologically. If you’ve received EIS investment, you cannot subsequently raise SEIS money from the same or different investors. The two schemes can overlap — you can raise SEIS and EIS in the same round — but SEIS shares must be issued first.

What happens to SEIS/EIS relief if the company is acquired?

If your company is acquired less than three years after the SEIS/EIS investment was made, investors’ shares are “disposed of” and the relief may need to be repaid. If the company is acquired after three years, investors typically keep both the income tax relief and benefit from CGT exemption on their gain. This is why many term sheets include protections for investors around early exit scenarios.

Do I need a shareholders agreement if we’re just two founders?

Yes — arguably more so than if you have multiple shareholders. A shareholders agreement between two founders with 50/50 ownership is essential for two reasons: it governs what happens if one of you wants to leave, and it provides a mechanism for resolving deadlocks (since two 50% shareholders can veto each other on everything).

What is an EMI option scheme and when should I set one up?

An Enterprise Management Incentive (EMI) scheme is a tax-advantaged share option plan for UK companies. It allows you to grant share options to employees with significant capital gains tax advantages. Most VC-backed companies set up an EMI scheme early to retain and incentivise key hires. It’s worth setting up before your first external round if possible, as the option pool is typically created at that point.

When do I need a term sheet vs a subscription agreement?

A term sheet is a non-binding document summarising the proposed terms of an investment. It’s exchanged early in the process, before full legal documents are drafted. A subscription agreement is the binding legal document that formalises the investment. Term sheets are common in VC rounds but less so in small angel rounds, where parties often proceed directly to drafting the subscription agreement.

Get Your Round Right

UK startup fundraising is genuinely complex. The tax implications, document requirements, and compliance obligations are significant — and the mistakes are hard to fix once investors are on your cap table.

The documents you need for a well-structured round:

For anything beyond a straightforward angel round, legal advice is not optional — it’s essential.

Need legal advice? Get connected with a specialist solicitor →

Need a bespoke version reviewed by a lawyer? Find out about our bespoke document service → from £395.

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