How to Structure Your First Investment Round in the UK (SEIS/EIS Edition)?

Landing that first cheque is exciting. In the UK, success often depends on structuring the first investment round carefully. For pre-seed and seed founders, this is more than a cash event. It sets the UK startup investment structure you will live with for years. You must balance investor needs, HMRC rules, and your cap table from day one.

SEIS and EIS define early-stage deals. A well-planned SEIS/EIS investment round shows you understand risk-to-capital rules, ordinary share requirements, and cash-paid share issuance. Missing these basics can block tax relief and stall the deal.

The core idea is simple: treat SEIS and EIS as tools. They are not only tax perks. They shape investor appetite and set signals about governance and growth intent. Effective SEIS EIS fundraising in the UK means showing how capital fuels development, not only covering costs.

Undo Capital helps founders manage cap tables, create clean share structures, and streamline SEIS/EIS workflows. But the aim here is clarity: what matters, why it matters, and how to act on it without wasting time or losing investor trust.

Before Structuring the Round: Fundamentals Every Founder Must Understand

Structuring a SEIS/EIS investment round starts long before you meet investors. As a founder or CFO, you need to know the tax schemes, the cultural expectations of UK angels, and how timing affects eligibility. This section lays the foundation for the steps that follow.

SEIS and EIS Overview: Why They Matter?

SEIS and EIS are government incentives that allow investors to claim income tax relief on qualifying investments. For SEIS, an investor can claim relief on up to £200,000 per tax year, and a company can raise up to £250,000. The shares must be ordinary and carry no preferential rights or redemption features. 

EIS allows companies up to £12 million over multiple rounds, though typical seed rounds range from £ 500k to £2 m. Investors often structure their commitments around these thresholds, so your SEIS/EIS round planning should earmark the first £150–250k for SEIS, with the remainder under EIS.

The risk‑to‑capital condition introduced in 2018 ensures that investments are genuine and high risk. Companies must show long‑term growth objectives, and investors could lose more than they gain. When you design your UK startup investment structure, emphasise how funds will drive development rather than just cover expenses. Explain your plan in your business plan and risk‑to‑capital statement; these documents will be needed for advance assurance.

UK Funding Culture: Why Angels Expect SEIS/EIS?

Since SEIS/EIS were introduced, they have transformed how early‑stage capital flows. Angel investors and syndicates expect to receive tax relief. According to HMRC’s latest statistics, 2,290 companies raised £242 million under SEIS in 2023‑24, a sharp increase thanks to the expanded limit. Nine‑tenths of companies raised more than £50,000, and 19% raised over the old £150k limit. This growth shows that founders who embrace SEIS/EIS raise bigger rounds. Equity‑crowdfunding platforms, angel networks and early‑stage VC funds design their pitch processes around these schemes. If you neglect them, you risk shrinking your pool of investors.

It is also important to understand typical round sizes. Industry data show that the average UK seed round in 2024 was £2.41 million with a median of £0.56 million. Pre‑seed rounds averaged £990k and median valuations around £5.3 m. These numbers reflect the risk appetite of investors and the increasing capital needed to compete globally. When planning your seed funding structure in the UK, consider how much capital you need before your next milestone, not just what investors will tolerate.

Picking the Right Timing (Pre‑Seed, Seed)

Your company’s age and developmental stage determine which scheme you can use. SEIS is available to companies that have been trading for no more than three years, while EIS covers companies up to seven years old (or ten for knowledge‑intensive businesses). Pre‑seed rounds often occur before product‑market fit, focusing on building a prototype or expanding a team. 

Seed rounds aim to scale operations and secure early revenues. With rising valuations, typical pre‑seed investment UK valuations average £3.2 million, while seed valuations average £4 million. Timing your round between these stages will influence investor expectations and the ratio between SEIS and EIS allocation.

Advance assurance is essential before you speak to investors. It gives written confirmation that your company is likely to qualify for SEIS/EIS, boosting investor confidence. Without it, many angels will not move forward. 

Step 1: Decide on the Size and Structure of the Round

At the outset, you need to determine how much capital you should raise and how to divide it between SEIS and EIS. A disciplined approach prevents dilution surprises and ensures you meet eligibility criteria.

Typical Pre‑Seed and Seed Round Sizes in the UK

There is no one‑size‑fits‑all answer, but data helps. Pre‑seed rounds in 2024 averaged £990k with a median of £500k. Seed rounds averaged £2.41 million, with a record half‑year median of £2.59 million. When modelling your UK seed round structure, aim for enough runway to reach your next value inflexion point, typically 12–18 months. Avoid raising so little that you return to investors prematurely; conversely, avoid oversizing the round if your valuation does not justify it.

Determining SEIS vs EIS Allocation

Because SEIS offers generous relief, investors prefer to take as much of the round under SEIS as possible. The maximum you can raise is £250k. EIS does not have a strict per‑round limit, but many seed rounds allocate £500k to £2 million under EIS. A common SEIS‑first strategy is to allocate the first £150k or £250k under SEIS and the rest under EIS. If your total raise is £800k, you might offer £250k SEIS and £550k EIS. Remember that each investor can claim relief only up to £200k per tax year, so oversubscription can force you to juggle allocations.

Example Allocations

Below is a simplified allocation table showing how you might structure a round of £500/k with different scenarios. Use it to model dilution and investor mix.

Rolling Close vs Single Close

A rolling close allows you to issue shares to investors whenever commitments are secured, rather than waiting for a single completion date. Rolling closes work well when fundraising takes several months or when you expect late investors. However, ensure that you do not exceed the three‑year trading age for SEIS eligibility and keep track of the SEIS limit. A single close can simplify administration, but may delay capital receipt. Consider your cash needs and investor expectations when deciding.

Step 2: Build a Compliant UK Cap Table for SEIS/EIS

Your cap table is a living document that shows who owns what. For a SEIS/EIS investment round, the structure and share classes must comply with HMRC rules, and you need to plan for dilution from options and future rounds.

Share Classes: Ordinary Shares Only

HMRC requires that SEIS/EIS shares are ordinary shares with no preferential rights to dividends or assets on winding up, and cannot be redeemable. Avoid preference shares, redemption rights, liquidation preferences or ratchets. If you issue preferred shares elsewhere in your cap table, ensure the SEIS/EIS investors take ordinary shares. Keep only one class of ordinary shares with identical rights for all investors.

Avoiding SEIS/EIS Disqualifying Terms

Disqualifying terms include any agreement that protects investors from risk. Avoid guaranteed returns, redemption rights, carried interest or loans convertible at discount rates beyond what is allowed under ASA rules. The risk‑to‑capital condition demands that investors bear genuine risk. Use ordinary shares or HMRC‑compliant Advanced Subscription Agreements (ASA) with a longstop date and conversion into ordinary shares within six months of payment. The standard YC SAFE is not compliant because it lacks a six‑month longstop and issues preferred stock.

Modelling Dilution Scenarios for Round Size

Build a spreadsheet to model dilution. Include all existing shares, option pool, any convertible loans and the planned SEIS/EIS investors. Determine how many shares you must issue to reach the target raise given your valuation. For example, if your pre‑money valuation is £3 million, and you aim to raise £600k, divide the valuation by the number of existing shares to find the price per share. Multiply the raise by that price to calculate new shares issued and update percentages. 

Run scenarios with different raise amounts to see how founder equity planning is affected. A cap table with 70% founders, 10% option pool and 20% investors after the round is common.

Pre‑Money vs Post‑Money in the UK Context

Valuation in UK seed rounds is usually discussed on a pre‑money basis. Pre‑money means the company’s valuation before new capital is added. Post‑money equals pre‑money plus the amount raised. To calculate your price per share, divide your pre‑money valuation by the total number of existing shares, including the option pool. Many investors in the UK are familiar with US‑style SAFEs, which use post‑money caps; however, SEIS/EIS investors often prefer clarity on pre‑money valuations and share price. Make sure your term sheet clearly states whether the valuation is pre‑ or post‑money.

Step 3: Prepare for Advance Assurance Before Talking to Investors

Advance assurance (AA) is HMRC’s indication that your company appears to meet SEIS/EIS requirements. Obtaining AA before fundraising signals to investors that their tax relief is secure, improving your chances of closing a round.

Why is Advance Assurance Non‑Negotiable?

The process ensures your company qualifies before you issue shares. Without it, investors must gamble on HMRC approval after they have invested, which few will do. HMRC statistics show that demand for SEIS rose sharply after the limit increased, but some companies still get rejected for failing the risk‑to‑capital test or issuing the wrong share class. Advance assurance mitigates this risk.

Documents Required for SEIS/EIS AA

Prepare the following: a detailed business plan describing your product, market and growth strategy; a risk‑to‑capital statement explaining why the investment is at risk; a draft cap table showing pre‑ and post‑investment shareholdings; financial forecasts for at least three years; copies of your articles of association and shareholders’ agreement; and details of the planned investment, including a term sheet. Use HMRC’s online service to submit the application. Undo Capital’s workflow can help assemble these documents automatically.

Avoiding Common AA Rejection Reasons

Common pitfalls include starting trade too early (beyond three years), using the wrong share class, failing to provide a coherent growth strategy and offering investor protections that breach the risk‑to‑capital condition. Ensure your articles remove pre‑emption rights only where necessary, not permanently. If you plan to issue convertible instruments, include a longstop date within six months. Finally, ensure your company is within the £15 million gross assets limit at the time of investment.

Step 4: Determine Your Investment Instruments

The instrument you use affects eligibility, investor rights and administrative complexity. In the UK, ordinary shares are the norm, but alternatives exist.

Ordinary Shares – Primary Standard

An equity round using ordinary shares is the simplest and most SEIS/EIS‑compliant approach. Shares carry voting rights and no preferential terms. Founders and investors know exactly how much equity they hold. Ordinary shares are issued at a nominal value (e.g. £0.01) with a share premium reflecting the investment price.

Advanced Subscription Agreements (ASA)

An ASA allows investors to pay now for shares issued in a future funding round. To qualify for SEIS/EIS relief, the agreement must include a longstop date (conversion within six months) and convert into ordinary shares. ASAs are popular when you need bridging finance before closing a larger equity round or when valuations are uncertain. They are simpler than convertibles because there is no interest, and they avoid the need for a second set of SEIS/EIS certificates.

Why SAFEs Are Rare/Problematic in the UK?

The YC SAFE, common in Silicon Valley, is usually not SEIS/EIS compliant because it has no fixed conversion date and often issues preferred stock. HMRC requires conversion within six months and into ordinary shares. If you wish to use a SAFE, use a UK‑style ASA with appropriate terms. Undo Capital offers templates that satisfy these requirements.

SEIS/EIS Compatibility for Each Instrument

Step 5: Define the Share Price and Valuation

Valuation sets the price per share and determines how much of your company you give away. Early‑stage valuations have risen but remain sensitive to market conditions.

Typical UK Pre‑Seed Valuations

Recent data from the British Business Bank show that UK pre-seed valuations averaged £3.2 million in 2024, while seed stage average pre-money valuations were £5.6 million (with a median of £3.04 million).

How Valuation Impacts SEIS/EIS?

The share price influences the number of shares you issue and, therefore, the dilution. For SEIS/EIS, the price must reflect commercial value. Artificially low valuations may appear to give investors an undue advantage, while artificially high valuations could breach the risk‑to‑capital test if the company seems unlikely to grow at the implied rate. Use comparables, revenue multiples or discounted cash‑flow analysis to justify your valuation. Discuss with your accountant to ensure HMRC will see it as reasonable.

Avoiding Artificial Pricing (HMRC Red Flags)

HMRC scrutinises valuations that are set to maximise tax relief rather than reflecting market conditions. Avoid setting a nominal share price and issuing shares at a high premium without justification. Document the basis for your valuation in your business plan and keep evidence of investor negotiations. Overpricing can scare off investors; underpricing can harm future rounds. In general, maintain transparency and tie valuation to milestones and forecasts.

Step 6: Create a Legally Compliant Term Sheet

Your term sheet outlines the main terms of the investment and becomes the blueprint for your subscription and shareholders’ agreements. It must balance investor protections with SEIS/EIS requirements.

What a UK Seed Term Sheet Should Include?

List the company’s pre‑money valuation, amount to be raised, share price, class of shares, number of shares to be issued and use of funds. Identify the investors and their commitments. Define the board structure, reserved matters requiring investor consent and the size of the employee option pool. Include warranties about the company’s corporate status, intellectual property and compliance. Outline conditions precedent, such as obtaining advance assurance. Provide confidentiality and exclusivity clauses.

What Must Be Avoided Under SEIS/EIS?

Avoid terms that could disqualify the investment: liquidation preferences, redemption rights, fixed returns, guaranteed dividends or ratchets. Do not grant investors preferential voting rights or a fixed coupon. Remove anti‑dilution provisions that give SEIS/EIS investors more shares if the valuation falls later. Keep shareholder agreements balanced and ensure all ordinary shareholders have the same rights.

Example SEIS/EIS‑Friendly Term Sheet Items

• No liquidation preference. Investors receive pro‑rata returns alongside founders.
• Board seat is optional. Investors may appoint an observer but not impose control.
• Information rights. Quarterly financial updates and annual budgets shared.
• Option pool. Create or expand an option pool of up to 10% for employees.
• Drag‑along and tag‑along. Allow a majority to force a sale, but protect minority investors.

Step 7: Structure Investor Allocation and Round Mechanics

This step involves deciding who gets SEIS allocation, how to handle oversubscription, and how to treat different types of investors.

Priority for SEIS Investors

Prioritise SEIS allocation for key angels or syndicates that add value. The SEIS cap is small, so reserve it for early supporters. In an oversubscribed SEIS/EIS investment round, reduce SEIS allocations if needed and shift the rest to EIS.

Handling Oversubscribed Rounds

If demand exceeds your target in a seed funding structure in the UK, you can raise the round size (within limits) or prioritise strategic investors. Cap SEIS at £250k and place extra interest under EIS. Clear rules protect goodwill.

Follow-on EIS Investors

EIS investors, often funds or family offices, expect market valuations and clean ordinary shares. Plan capital needs, as EIS can run into millions. When blending SEIS and EIS, issue SEIS first and define allocation boundaries.

Angels vs Funds

Angels usually write smaller tickets and focus on SEIS relief. Funds look at scale and due diligence. In the first investment round in the UK, align angels with SEIS and funds with EIS, while keeping ordinary shares and avoiding preferential rights.

Handling Foreign Investors

Foreign capital can join a UK startup investment structure, but foreign investors do not receive SEIS/EIS relief. Prevent them from becoming connected persons by staying below 30%. Use standard documents and disclose risk clearly to maintain SEIS EIS fundraising UK compliance.

Step 8: Execute the Round: Documentation and Corporate Actions

Once investors have agreed to terms, you need to execute the legal documents and update your corporate records.

Shareholders’ Agreements

Use a simple shareholders’ agreement to set governance, transfers, and dispute rules. Keep clauses SEIS/EIS-friendly. Avoid veto or preferential rights that could threaten eligibility.

Subscription Agreements

Each investor signs a subscription agreement confirming the amount, price per share, and SEIS/EIS risk acknowledgements. Reference the term sheet and state clearly that shares are ordinary.

Share Allotment and SH01

After funds arrive, allot shares, update the register, and file SH01 within one month. The SH01 records share class and nominal value. Late filing risks penalties and SEIS/EIS non-compliance.

Investor Onboarding Workflow

Onboard investors with KYC checks, collect funds, issue certificates, and prepare SEIS/EIS forms. Tools like Undo Capital support workflow, reduce admin, and keep the process clean and secure.

Step 9: Complete HMRC Compliance After the Round

The final step is to report your investment to HMRC and distribute certificates to investors.

When to File SEIS1/EIS1?

File SEIS1 or EIS1 after shares are issued and funds received. You must wait four months from the trading start or until 70% of funds are spent. HMRC will then issue SEIS3/EIS3 certificates.

Distributing SEIS3/EIS3

Send SEIS3/EIS3 to investors so they can claim tax relief. Keep copies and give basic guidance on use. No certificate means no relief.

Use of Funds Rules

SEIS/EIS money must support growth, hiring, product work, marketing, and working capital. It cannot fund acquisitions, dividends, or loan repayment. Track spending in case of audit.

Avoiding Compliance Mistakes

Avoid adding new share classes or protections post-round. Keep clean records. Notify HMRC if plans change. Work with advisers to maintain SEIS/EIS compliance.

Common Mistakes Founders Make When Structuring Their First Round

Learning from others’ missteps can save time and money. Below are frequent errors to avoid.

No Advance Assurance

Failing to obtain advance assurance before pitching can deter serious investors. Some founders assume they will qualify because their business is “innovative”; HMRC often disagrees. Without AA, you may have to return funds or restructure the deal, causing delays.

Wrong Share Classes

Issuing preference shares or including redemption rights disqualifies SEIS/EISgov.uk. Even minor differences in rights can invalidate relief. Ensure your articles of association and shareholder agreements define only one class of ordinary shares for investors.

Unclear Valuation

Overvaluing or undervaluing the company can lead to difficult negotiations and red flags from HMRC. Use comparable data (e.g., £3.2 m average pre‑seed valuation) to justify your price and be prepared to defend it.

Cap Table Errors

Neglecting to account for the option pool or existing convertible instruments can surprise investors when they realise their ownership is less than expected. Keep your cap table up to date, including all warrants, options and agreements.

Wrong Instruments (SAFE)

Using a standard SAFE without a longstop date or conversion into ordinary shares can void SEIS/EIS relief. Use HMRC‑compliant ASAs instead.

Investors Becoming Connected

If an investor (including their associates) holds more than 30% of the company, they become a connected person and cannot claim SEIS/EIS relief. Monitor share percentages and avoid giving an investor too much control.

Underestimating Legal Documentation

Relying on templates without tailored legal advice can lead to inconsistencies. Work with solicitors experienced in SEIS/EIS. Use automated platforms like Undo Capital to generate documents, but always review them for accuracy.

How Undo Capital Helps Structure an SEIS/EIS Round End‑to‑End?

Undo Capital is a digital platform built for founders. It automates tasks that normally consume weeks of work.  Model different raise sizes, allocations and option pools quickly. Generate visualisations like the pie chart above. Use documents drafted by UK solicitors to ensure SEIS/EIS compliance. Each template includes the required longstop date and ordinary share conversion.

Prepare your advance assurance application with built‑in document prompts, risk‑to‑capital statements and HMRC forms.

By using Undo Capital, founders can focus on building their business while ensuring their SEIS/EIS fundraising in the UK is structured correctly. The platform’s automation reduces errors and speeds up compliance.