Taking on your first external investment is exciting, but it also raises the legal bar from a hobby project to a regulated company. Angels and early-stage funds will test the strength of your paperwork as closely as they judge your product. The guidance below sets out the key legal checkpoints founders should cover before opening a pre-seed round.
What is pre-seed funding?
Pre-seed funding is the first outside investment a start-up attracts. It usually ranges from £50,000 to £500,000 and comes from founders, friends and family, angel investors, crowdfunding or specialist micro-funds. Basically, they provide the upfront money you need in exchange for a share in the equity. The money helps turn a concept or prototype into something investors can test, whether that is a minimum viable product, early customer traction, or a key technical hire.
Why raise it?
Early capital gives a young company breathing room to test assumptions, refine its product, and gather evidence for a larger seed round. Without it, many ideas remain on paper because founders still have day jobs or cannot afford development costs.
Which companies seek pre-seed funding?
High-growth technology, life sciences and digital consumer brands are frequent applicants, but any venture that needs to move quickly (and can show credible scale potential) may look to pre-seed. These businesses face short timelines, so their legal foundations must be sorted before bigger investors arrive.
Key legal issues to tackle before you approach investors
Investors expect to see that the essentials are in order. Below are the areas you need to review first.
Company set-up and ownership
Incorporation checks: Confirm that shares have been issued, statutory registers are complete, and directors already have the authority to allot new shares under section 551 of the Companies Act 2006. Resolve pre-emption rights under section 561 ahead of the round.
Founders’ agreement and cap table: Agree the current split of ownership and what happens if a founder leaves. A short shareholders’ agreement with vesting provisions prevents future disputes.
Intellectual property assignments: Ensure that code, trademarks and other IPs sit inside the company rather than with individuals or contractors. Use assignment deeds and robust contractor agreements.
Funding mechanics and tax reliefs
SEIS/EIS planning: Under the Seed Enterprise Investment Scheme a qualifying start-up can raise a lifetime total of up to £250,000. Investors receive 50 % income-tax relief on their SEIS shares (up to £200k per person each tax year). Be sure to apply for HMRC advance assurance early, as approval can take several weeks.
Equity round or Advance Subscription Agreement (ASA): Decide whether investors receive shares immediately or convert later under an ASA. ASAs keep valuation discussions light at this stage and can still qualify for SEIS/EIS relief, but the terms must be drafted carefully to stay tax-compliant.
Compliance and people
Regulatory status: If you handle personal data, prepare a GDPR-compliant privacy notice and maintain processing records. Sectors such as fintech and health tech may also need FCA or MHRA permissions, so make those requirements clear in disclosures.
Employment basics and option schemes: Written employment contracts, staff policies and, where relevant, an Enterprise Management Incentive (EMI) option scheme give investors confidence that HR matters are under control.
Documents investors look for
Here are some of the key documents that you’ll need to be able to show to potential investors:
- Pitch deck and financial model – Show the problem, your solution, progress to date and how the funds will be used.
- Term sheet – Outline the headline deal terms such as valuation cap, option pool and investor rights.
- Subscription agreement or ASA – Set out the legal mechanics of the investment and any conditions that must be met before completion.
- Updated articles of association or shareholders’ agreement – Cover voting rights, leaver provisions, drag-along and tag-along clauses.
- Disclosure letter – List known risks so investors cannot claim you hid important information.
- HMRC advance-assurance letter – Confirm that SEIS or EIS relief will be available.
Prepare these documents early. Conversations with investors tend to move faster when everything is ready to share.
Why work with JPP Law?
Raising pre-seed funding is hectic. You’re refining the product, talking to users and meeting investors all at once. But our early-stage team keeps the legal side clear and manageable. We bring focused start-up expertise, offering fixed-fee toolkits that cover the essentials such as incorporation tweaks to SEIS/EIS filings. We explain everything in plain English, guiding you on the practical tasks you can complete alongside development. Most importantly, we draft contracts and articles that will still work at Series A and beyond, saving you a costly rewrite later.
Next steps
Book a free 20-minute call to discuss your upcoming round. We will outline the legal essentials, provide a no-obligation fixed-fee quote and, if you are ready, begin the SEIS/EIS advance assurance process right away.
You may also be interested in:
The First Four Stages of Funding Rounds: What You Need to Know
Legal Preparation for Seed Funding
Legal Preparation for Series A Funding
Legal Preparation for Series B Funding
Startup Funding Rounds – Advice and Preparation
Advanced Subscription Agreements: A Tool for Managing Valuation Uncertainty
Convertible Loan Notes: The pros and cons when it comes to raising business finance
Crowdfunding Opportunities for Startups and Scaleups in the UK
UK Startup Funding Options and the Associated Legal Considerations
The Pros and Cons of Venture Capital Funding
Peer-to-Peer Lending: Advantages and Disadvantages
Funding alone is not always enough to ensure startups thrive
