The Anatomy of a Seed Deal (Part 1)
TL;DR — We want to give founders the ability to make informed decisions when raising their first investment. The best way to do this is by showing them what seed rounds look like in the UK. So if you’ve raised your first round (of less than £2m) in the last 12 months then you can help by anonymously sharing your experience here: https://tristanwatson.typeform.com/to/Dwa1Vp
For most founders the first time they’ll ever see the full terms of an investment deal is when they’re raising their seed round. They’ll have seen the headlines of how much other companies have raised, but they won’t have any insight into what valuation the round was raised at or what clauses the investors included in the deal. Whereas on the other side of the table most investors know exactly what to expect, having seen similar deals dozens (or even hundreds) of times before.
Startups will happily share how much they pay their staff, or how much revenue they’re generating, but we still won’t talk openly about the details of an investment round.
Why, in an industry that prides itself on transparency and the sharing of information, is there still such a taboo around discussing the terms of a deal?
There have been previous attempts to change this. Seed Summit was founded in 2009 to provide a standard set of documents that would ensure transparency and consistency across early-stage investments in Europe. This was a huge step forward, and since then they have continued to release documents making it easier and clearer for startups and investors to agree terms.
The problem is that the number of startup investors has exploded in the last five years. SEIS has been an incredible incentive for people who before would never have considered angel investing to start building a portfolio of tech investments. There have been a lot of positive outcomes from this, but there are a lot of negative ones too. Suddenly there’s a lot more capital in the market, and it can be very difficult for an inexperienced founder to tell the difference between ‘good’ and ‘bad’ money.
At Ignite we invest in 30 companies a year through our programmes, which means that we end up directly involved in 20–25 seed deals every year. On top of this we help and advise a lot of companies outside of our accelerator so we typically get to see another 15–20 seed deals. These investments range in shape and size from £100k SEIS rounds to £1m+ VC deals, with convertible notes, advanced subscription agreements and everything else in-between.
This means that we have a good idea of what we believe a ‘normal’ deal looks like in terms of price, fees, clauses, timeframe etc, and we’ve always been happy to share this information.
However we’ve come to realise that there is still a huge gap in the collective knowledge of what a good deal looks like, and this applies to investors as much as it does to the startups. Helping new angels to understand why it’s essential not to take too much equity early on is just as important as telling a founder that it’s not normal to have to pay a 10% arrangement fee on a £150k investment.
So we’ve started collecting basic data on the seed rounds of companies that we know, and we’d now like to open this up to all UK startups. Our aim is to build an open database of the deals that are being done, pulling back the curtain on an opaque corner of our industry and giving both startups and investors a point of reference for their own deals.
So, if you’re a startup, then you can help by sharing the details of your seed round. If you’re a VC, an Angel, or an advisor then please send this out to your portfolio companies and ask them to fill in the form. We won’t be releasing any identifying information about the companies or the investors involved — this is about the headline numbers and identifying trends across the market.
Transparency and openness will only make the UK Tech ecosystem a stronger place to invest in and grow a company, and this is an easy way to start.
Fill in the form here: https://tristanwatson.typeform.com/to/Dwa1Vp
