There has been a rise in ‘agile funding’ in the UK, according to new data from LegalTech firm SeedLegals.
The data, which was collected from companies raising money via the SeedLegals legal platform, shows that UK start-ups are now raising money four times more frequently than the traditional 12-18-month cycle.
The figures demonstrate a wider trend in the start-up investment space as a greater number of early-stage companies look to move away from traditional funding rounds in favour of more opportunistic ‘agile funding’.
Thanks to funding automation technology which gives founders the flexibility to raise funds for their start-ups in a fraction of the time, early-stage companies are now completing an average of 2.7 funding events per year.
The data from SeedLegals also reveals that the median average amount of equity given away by early stage companies per funding round has halved in a year – indicative of the dramatic rise in the frequency of smaller round raises.
The average figure was 15 per cent in 2018 to just 7.5 per cent in 2019 and comes as a direct result of the increased number of early-stage companies securing pre- and post-round investment. According to SeedLegals data, 70 per cent of companies who do funding rounds via the SeedLegals platform now include a ‘rolling close’ as part of their round.
Average amount of equity given away in early stage UK funding rounds
“This new data shows that the way founders are raising funds for their companies is fundamentally changing,” said Anthony Rose, CEO and co-founder of SeedLegals.
“Until now, the traditional approach for start-ups looking to secure investment has followed a ‘go-big-or-go-bust’ logic. Because of the high costs associated with using a law firm to finalise a funding round – plus the difficulty of coordinating all of your investors, negotiating deal terms and getting everyone to sign the documentation – founders have traditionally sought to avoid the cost and hassle of fundraising as much as possible by raising larger amounts on a more infrequent basis.
“The trouble is that while raising every 12-to-18 months softens the blow of exorbitant legal fees, it presents a whole host of additional, unnecessary problems.
“The fear of running out of money before closing the next big round of investment is immensely stressful for founders, and the logistics of a traditional round means taking time out from actually running the business that they’re trying to grow.
“More importantly, the process of securing more money than they realistically need in the short-term means giving away a larger chunk of their company at a lower valuation, diminishing their returns in the long run.”
Founders of smaller companies in particular are raising more money ahead of a formal funding round via SeedFAST, a type of advanced subscription agreement which allow founders to get investment now, while delaying doing a funding round for up to 12 months while still being SEIS/EIS compatible.
According to SeedLegals data, start-ups with a valuation of under £2.5m are twice as likely to raise money ahead of their first funding round using SeedFASTs as those with a valuation of over £4m.
SeedLegals gives companies the ability to both raise money ahead of a funding round using a SeedFAST and also allows them to top up a funding round afterwards via Instant Investment.
“At SeedLegals, we’ve pioneered the model of agile funding to solve this. Rather than feeling forced to raise rounds via the costly, cumbersome 12-to-18-month process, founders are now being empowered by technology to raise money when they need it, on a more frequent basis, and at a time which suits them,” added Rose.
“With our SeedFAST and Instant Investment options, we’re enabling founders to fundraise in a way that meets their company’s needs – before, during or after a formal funding round – all while saving them time and money in the process.”