FounderCatalyst & SFC: Funding Round Process

Introduction

This document outlines the collaborative process between FounderCatalyst Ltd (“FounderCatalyst”) and SFC Capital Ltd (“SFC”) for efficiently closing a funding round. The aim is to streamline communication and ensure a smooth execution from term sheet production to funds received.

Founders should use this document as a play book for how to manage a funding round involving SFC on the FounderCatalyst platform. As always, if you have any questions or suggestions for improvements, then please message info@foundercatalyst.com or drop the team a support ticket

Overview

This process is in 3 steps:

1. Invite SFC to formalise and close the funding round.

2. Post-close obligations.

We walk through each of these in the following sections.

Why use FounderCatalyst to close your SFC funding round?

FounderCatalyst was built by founders, for founders. Our mission is to remove key barriers in the UK startup ecosystem - particularly the high legal costs of funding rounds and the lack of meaningful support.

We offer a simple and transparent fee structure: each funding round costs just £1,495 + VAT, no matter how much you raise. For example, one of our clients secured £2.8m through FounderCatalyst and still only paid £1,495 + VAT - around a tenth of what other providers would charge.

Our TrustPilot score - the best for any UK based funding platform - speaks volumes about our service. But what makes us different is our team. The FounderCatalyst founding team is made up of exited founders and active angel investors, bringing real-world experience to the table. Among us are a practising solicitor, a chartered accountant, an exited founder who grew a business from £0 to £30m revenue in four years, and seasoned angel investors. This means you’ll be supported by people who have built, scaled, exited, and invested in startups themselves - not by a junior associate with a checklist.

Preparation - checking your share price works

SFC will expect you to have a share price which is a clean 2 digits without needing rounding.

To give an example, if you have a pre-money valuation of £3.5m and 3,000,000 shares in circulation before the funding round, this would give a share price of £1.166666666[...].

In this instance you would multiple 3m shares x £1.16 to ascertain what a 'clean' share price looks like and change your pre-money valuation to £3,480,000 and then everything is perfect.

You should also ensure that you have at least 100,000 shares in circulation before a funding round - you may need to file an SH02 to achieve this.

1. Invite SFC to formalise and close the funding round.

At this point, we assume you have an ‘offer in principle’ from SFC, subject to legals and due diligence.

If you haven’t done so already, you should setup on FounderCatalyst (don’t worry, you can undertake this stage for free):

• Head to the FounderCatalyst website and create an account.

• Add your company as directed.

• Enter your details and those of any co-founders.

• Enter the details of your current shareholding (your CapTable). If you have any pending information heading to Companies House (e.g. you are undertaking a share split or need to add shareholdings to reflect reality), enter the CapTable as it will be required once these filings have occurred.

• Now create a specific share class for SFC to use - head to the company section and click Add Share Class. Enter the name as “A Ordinary” and leave the other details as they are - click Add Share Class again.

• Click on the funding rounds menu on the left.

• Start a “Full initial funding round”.

• The first item in Step 1 asks “Do you want to generate paperwork for a specific investor?”. You should select SFC Capital from this list. This will:

  • Lock certain settings on the platform to align with SFC requirements.

  • Make specific SFC amends to the Subscription and Shareholders’ agreement and Articles of association.

• Enter all of the details in Funding Round Step 1. You will need to pass over Specific Disclosures for now.

• Finally, once you've fully completed Step 1 of the funding round process, it should enable access to Step 2, "Invited".

• Next, head to the People menu on the left and invite your nominated SFC contact, with email name@sfccapital.com to the platform as a View Only role.

• You should now invite investors to the funding round:

  • SFC Nominees Limited to this funding round with the relevant amount(s). This should be done via the “A new company that will own shares” button. Use the name Joseph Zipfel, the email address deals@sfccapital.com and the company name as SFC Nominees Limited.

  • SFC BBI Nominees Ltd to this funding round with the relevant amount(s). This should be done via the “A new company that will own shares” button. Use the name Joseph Zipfel, the email address joseph@sfccapital.com and the company name as SFC BBI Nominees Ltd.

  • Any other investors that you’ve agreed with SFC.

  • Note: If any of your investors have both SEIS and EIS investment in this funding round then invite them twice - one marked as SEIS and the other for the EIS allocation.

• Once everything is perfect: don’t click the “Send invitation emails” button - we'll do that for you. You should log a support ticket now - copy and paste the following: Dear FC - we are undertaking an SFC funding round - can you please: amend xxx share price in articles. Remove NDA for any SFC representatives. Change signature blocks for deals@sfccapital.com to SFC Nominees Limited (acting on behalf of the Startup Funding Club Angel Fund)

Your representative from SFC will then onboard and undertake a review. If all ok, they will sign the term sheet. You should download and save a copy of this locally as it will be deleted soon - more on that in the next section.

Phase 2: Closing Procedure

We assume you’ve undertaken Phase 1 and your SFC contact has signed the Term Sheet and asked you to progress - great stuff and congratulations…the next phase is straightforward.

• IMPORTANT: If you are closing a ‘dual round’ involving both SEIS and EIS in the same round, then you need to be careful and should consider the process detailed at before passing this point in the process; see our guide on managing a dual round

• When confirmed as ok by SFC, and everyone is onboarded you should head to Step 3 of the funding round and Lock the Documents for signing. Again, alert your contact at SFC that you have done so.

• Confirm to SFC when everyone else has signed in the funding round and you reach Step 4 (Receiving).

• SFC will then sign all documents.

• You should continue to receive the money as normal (when you get payments from investors, you mark as received on step 4 on the same day you get the money).

• Finally, the round is closed - bravo!

Congratulations - you have closed a funding round in conjunction with FounderCatalyst and SFC 🎉

Phase 3: Post-completion obligations

The fun doesn’t stop there - you need now need to undertake a number of post-completion obligations - we outline those in our post round formalities article

SFC will undertake compliance and certificate actions for their investors.

If you are using FounderCatalyst to undertake the (S)EIS compliance and certificate process for non-SFC investors, then you’ll now need to head to the Beneficial Owners section of the CapTable and enter details of each underlying investor to facilitate that process - see our guide on Special Purpose Vehicles (SPV's)

Once you've entered the beneficial owners, you should swiftly follow this process to submit the SEIS/EIS compliance statements which is the first step towards your investors being able to claim tax relief.

Useful Links

• All about SPVs (including MNL Nominees Limited)

• Post funding obligations

• How to undertake a ‘dual round’ involving SEIS and EIS

FAQs

What is a Term Sheet?

A term sheet is a short document – usually 4 or 5 pages - that summarises the key deal terms and is designed to be much more accessible than the formal documents of a funding round, which usually add up to more than 100 pages of dense legalese.

As such, the term sheet can be considered a commercial rather than a contractual tool, because it:

• Serves no enduring or useful legal function.

• Has (mostly) no legally binding impact.

• Doesn’t oblige an investor to invest or a Founder to accept the investment.

So, if it’s not contractual, you might ask… why does it exist? Here are three key reasons:

1. Speed and focus: Distilling 100+ pages into 4 or 5 pages speeds up negotiations and focuses attention on the ‘interesting’ stuff without being bogged down by detail.

2. Aids alignment: Aims for alignment between founder and investor(s), i.e., what company will the investment be in, how much, what valuation etc., and serves as an anchor for both parties as the process continues.

3. Signals intent: From the founder’s side, it demonstrates you are genuinely ready to take on investment and have made yourselves ‘investor ready’. From the investor’s side, signing a term sheet is a sign of commitment to a funding round. While it’s not binding, and lots can still go wrong, it’s a clear statement of intention and it would be hard for either investor or founder to go back and renegotiate something that has already been agreed in principle in the term sheet.

Back in the bad old days, you’d want to agree to all of the interesting details before you throw £10k at a lawyer to take the term sheet and turn it into Subscription and Shareholders Agreement, Articles etc. Of course, with FounderCatalyst these other documents are created at the same time as the term sheet anyway, with no additional time or cost implications.