UK Law and Practice Contributed by: Carly Gulliver, Giles Distin, David Anderson, James Dawson, George Danczak and Elvan Hussein, Addleshaw Goddard
financing round will often be referred to as a “pre- seed” or “seed” round. Where applicable, investments may be made pursuant to the Seed Enterprise Invest- ment Scheme or the Enterprise Investment Scheme, which is a crucial aspect of early-stage financing for companies that are eligible. Other sources of funding, such as grants or loan financing, may also be available to some companies operating in certain sectors. Companies will often look to maximise such alternative sources of non-dilutive funding alongside an equity fundraise. Companies that have received some funding in the past may subsequently receive investment from ven- ture capital (VC) investors at future investment rounds, who will generally be able to invest larger sums of money than seed investors. This funding is usually not accessible at the earliest stage, as many VC inves- tors will only invest in companies that have previously received funding or that have reached a certain age and stage. 2.4 Venture Capital In the UK, VC funding usually comes either from dedi- cated VC funds or from investment syndicates. There are also some government-sponsored funds that are active in this space, including British Busi- ness Bank, National Wealth Fund, Scottish Enterprise and Development Bank of Wales. Often, they will not lead investment rounds, but aim to fill “gaps” in the VC market where private investment may not be as read- ily accessible. Government-sponsored funds can be the difference between a fundraise being successful and failing. However, they naturally bring more over- sight and control, which the investee companies must weigh up as they look to fill the gaps in their funding requirements. VC funding is generally accessible in the UK, although the level of accessibility and the amount investors are able to invest varies between different markets. The geographical source of funding varies. In the BVCA’s report on VC investment published in May 2025, over 50% of venture capital investment origi- nated from UK-based investors, with just over 25%
from North America and 19.3% from other European countries. However, foreign investment (particularly from the USA) is much more common at later stages (Series B and beyond) than during the early stages of a company’s lifecycle. 2.5 Venture Capital Documentation The industry has generally shifted towards using the BVCA’s model documents as a universal standard for venture investments in UK-based companies. This means there is an increasing degree of standardisa- tion in the documentation used, although deviations from the model documents are common. In some cir- cles, aspects of the BVCA model documents have been criticised for being overly founder-friendly and not reflective of industry practice. 2.6 Change of Corporate Form or Migration In general, UK-headquartered start-ups that are receiving direct investment from VC investors tend to stay in the same corporate form, with some excep- tions, including the following. • Where an overseas market is potentially much more lucrative than the UK market – for example, producers of medical devices may find the private US healthcare system much more lucrative due to the differences in the healthcare systems. The company may be encouraged to carry out a reloca- tion, for example by conducting a “Delaware Flip”. • Where a start-up thinks it can raise more funds in another market. • Where a start-up is looking to establish an over- seas branch or to hire employees in another juris- diction. • Where a start-up is anticipating an exit involving a buyer based in a foreign jurisdiction. • When negotiating a significant commercial con- tract, foreign counterparties may prefer to contract with a company registered in the same jurisdiction rather than a UK-registered entity.
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