Flipping for funding: Is the Delaware flip your next move?

With the funding landscape growing increasingly competitive in the UK, more founders are asking whether a Delaware flip could help them raise funds more easily.

So what is a Delaware flip?

A Delaware flip is a restructuring process where a UK company creates a new parent company incorporated in Delaware, USA, and turns the original UK entity into its wholly owned subsidiary. As part of the flip, all shareholders in the UK company exchange their shares for equivalent shares in the new U.S. parent, effectively transferring the entire cap table to the Delaware entity. This structure is typically adopted to meet the requirements of a committed U.S. investor or to align with U.S. market norms. Delaware is the preferred jurisdiction for American investors due to its established legal framework, investor-friendly corporate laws, and a specialised court system for business disputes - over 90% of U.S. startups are incorporated there.

However, a full Delaware flip isn’t always necessary. If your primary goal is expanding into the U.S. market - such as hiring locally or establishing a sales presence - a simpler approach is to set up a U.S. subsidiary under your existing UK parent. This avoids the complexity and cost of a full flip. To operate in the U.S., you must register to do business in each state where you hire employees or generate revenue. For example, hiring someone in San Francisco requires registration with the state of California. You’ll also need to register for tax in relevant states, obtain a U.S. Employer Identification Number (EIN), and set up banking and payroll - local tax advice is highly recommended.

How the flip works in practice

The UK company first secures board and shareholder approval, then forms the Delaware parent and appoints its directors. Before any share exchange, it should obtain HMRC pre-clearance under Section 138 TCGA 1992 to confirm the transaction qualifies for tax deferral and preserves SEIS/EIS relief. Next come the mechanics: approve the UK-to-US share transfer, assign all IP to the Delaware parent, open a U.S. bank account, register for federal and relevant state taxes, and issue founder shares in the new entity. Finally, UK shareholders exchange their holdings for shares in the Delaware parent. Throughout, the company must comply with both UK and U.S. corporate rules, structure the deal to protect SEIS/EIS status, and keep existing investors fully informed so their tax advantages and advance assurance remain intact.

What are the potential benefits of a Delaware flip?

• Higher valuations: U.S. investors often assign higher valuations to startups, driven by the potential for larger market opportunities and bigger exits. A Delaware flip can make UK startups more attractive by aligning with U.S. investor expectations.

• Access to capital: The U.S. hosts the world’s largest venture capital ecosystem. Many American VCs - particularly at the Seed and Series A stages - prefer or even require a U.S. corporate entity to invest.

• Path to public markets: Establishing a U.S. entity can simplify regulatory compliance for a future U.S. IPO, offering a more efficient and cost-effective alternative to a private exit.

• QSBS benefits for U.S. investors: U.S. individual investors may qualify for the Qualified Small Business Stock (QSBS) exemption, which can exclude up to 100% of capital gains on eligible startup shares - an appealing tax incentive for backing flipped UK companies.

• Preserving SEIS/EIS eligibility: A Delaware flip can be structured to retain SEIS/EIS eligibility, allowing UK investors to keep their tax reliefs. To ensure this, startups must obtain pre-clearance from HMRC.

What are the potential downsides?

• Not a fundraising shortcut: A Delaware flip won’t fix weak fundamentals. If UK investors are hesitant due to lack of product-market fit or traction, US investors will likely feel the same. A US entity doesn’t guarantee capital.

• US traction challenge: Raising in the U.S. is often harder than founders expect - especially without traction or a strong U.S. investor already committed. Simply flipping won’t open doors on its own. You’ll be competing with U.S. startups already operating in their backyard.

• Scalability expectations: U.S. funds look for billion-dollar outcomes. A $100m VC fund needs startups that can return $1bn. Many good businesses don’t meet that bar and that’s perfectly okay.

• SEIS/EIS risk: A Delaware flip can put SEIS/EIS eligibility at risk if not expertly managed. Improper structuring may invalidate advance assurance or investor tax relief, making your company less attractive to UK angels and early-stage funds. To protect eligibility, the U.S. entity must issue mirror shares (with identical rights) and maintain a UK permanent establishment for three years after the last SEIS/EIS share issue. It’s also essential to apply for HMRC advance clearance under Section 138 TCGA 1992 to confirm the transaction qualifies for tax deferral and reassure investors the flip is for genuine commercial reasons.

• Policy risk: UK policy changes could affect SEIS/EIS eligibility for flipped companies. Future rules might limit or remove benefits if your company is no longer deemed "UK-based."

• Ongoing admin burden & distraction: A flip means running two legal entities across two jurisdictions. Dual tax filings, compliance, and reporting requirements add ongoing complexity and cost. Ultimately, a founder should be focused on growing the business and this is a time intensive process diverting energy from that.

So is it worth it?

UK companies should avoid flipping prematurely. A Delaware Flip should typically be driven by a clear need - most often when a U.S. investor requires it to close a funding round. Flipping on the assumption that it will attract U.S. capital is risky and rarely justified or result in success.

If your goal is simply to hire in the U.S. or establish a commercial presence, setting up a U.S. subsidiary is often sufficient without the need for a full Delaware flip. In short: don’t speculate - flip only when it’s necessary.

How FounderCatalyst can help

At FounderCatalyst, we make the SEIS and EIS process straightforward for founders. We handle everything from advance assurance applications to compliance and certificate issuance, ensuring your investors can claim their tax reliefs with confidence.

For companies exploring a Delaware flip, we can also assist with SEIS advance assurance for foreign (including Delaware) parent companies, helping you preserve UK investor eligibility while meeting U.S. investor requirements.