Raising money costs money — legal fees, admin costs and a CMS tool to track investor conversations are all examples of expenses incurred by startups while fundraising.
June Angelides, investor at Samos Investments, invests in and works with startups from pre-seed to Series A. In our Startup Life newsletter, she shared what an early-stage startup should expect to spend while raising a round of funding.
Start thinking about legal fees early
Legal fees are typically between £10k and 100k in the UK — although, of course, they vary by country. Legal fees (including those of the investors!) tend to be paid by the startup but sometimes VCs pay them — especially if they’re a bigger firm — so double check when negotiating deal terms. Investors will usually place a cap on the costs a startup will have to cover in the contract so you'll know the maximum to budget for.
Before you begin fundraising, ask:
- Who pays the investors' legal fees?
- When do fees have to be paid? Before or after the round is completed?
- What is the maximum this could cost?
- Do I need a law firm or can I use a legaltech platform like SeedLegals in the UK?
You don't need an accountant
Not at this stage, anyway. Have someone from the team who is financially savvy available to investors. They should be able to answer questions about your financials and projections — for example, how much runway you have now and will have after fundraising, expected revenue, business costs, margins and projected marketing spend. One of the cofounding team can usually do this.
👉 Read: 10 types of funding for startups — explained
Use a platform to reduce your admin
If you’re raising from multiple sources — especially lots of angels with smaller cheques — you may want to use a fundraising platform like Odin or Vauban to pool money together under one umbrella (a syndicate). It can help keep your cap table clean.
The platforms take on the admin of, for example, being legally and tax compliant, providing carry to each investor and accepting multiple currencies. Platforms tend to charge a flat fee plus a percentage of the total amount raised. For example, Odin’s basic level charges £1k and 1.9% of raised funds (which is capped at £2k).
Find the right tools
There are many tools available, from deck builders to investor lists. Don’t just throw money around — prioritise where you need the most help. For example, you may want a sophisticated CMS (content management system) to store contacts and track how conversations are going. You may want Google Drive to host your data room (the online space startups should set up to store confidential company documents that you need to share, securely, with potential investors).
You may also want a tool like DocSend, which costs upwards of $500 a year, to ensure your pitch deck and data room are only accessed by the intended recipients — if you’re a startup with proprietary IP, this helps ensure that potential investors don’t forward on information to competitors.
Don’t pay for pitch training
And definitely never pay someone to pitch for you! This is a huge red flag. A founder should be able to tell the story of the problem they are trying to solve and how they're doing that. There isn't a cookie-cutter way to story-tell — be yourself.
Other things we'd not expect early-stage founders to pay for include advisers, services that introduce you to investors or due diligence.
Get a good deck created
A pitch deck is often the first touchpoint for an investor. It should stand out while being clear and simple. If you're not a designer — or don't have one on the team — you can pay someone to design your investment deck. It should cost around £200.
Use your network
Yes, you will need support fine-tuning your pitch, the deck and asks you have for investors. Instead of paying advisers, leverage the experience of founders who've done it before; ask your advisory board for advice on what your asks to investors should be and where you need most support; and get feedback from your team. If you have them, go back to your early angel investors — why did they invest? What do they see as the value? Have you incorporated that into this round?
Leverage your network's network too — they can get you in front of relevant investors.
Budget your time
Time is an expense. The cost of the time spent away from the business can have serious financial implications when teams are small and the founder is responsible for sales or product — targets can be missed and errors made. Be realistic about your output and delegate early. You may want to bring someone in to cover your load.
If you have multiple cofounders, make one person the primary contact for investors — the rest can carry on building the business.
On the subject of... budgeting
🛫 It’s taking longer to get deals done. Then build a longer runway, said attendees of a recent Sifted Roundtable.
🤔 Should you pay for introductions? If you don’t have a network or you have a short runway and need money in the bank quickly, it could be a good option.
💰Don’t underestimate startup expenses. When deciding how much to raise, include operations, marketing and admin costs — or you may not have enough to get you to the next round of funding, warns Silicon Valley Bank.
🕰️ When should you raise your next round? According to Dealroom, the median time from seed to Series A is 18 months.
✔️ What do you need to know before you raise a seed round? This thread’s got your checklist sorted.
