For startups and spin outs, raising capital can feel like learning a new language. Terms like SEIS, EIS, and priced rounds are commonly used in fundraising conversations, but understanding when and why each is used is critical for long-term success. Although not every company follows the same route, but most startups follow a broadly similar funding path and understanding these broad brush steps can help founders make informed decisions and avoid costly mistakes:
Stage 1: using SEIS to fund and validate a startup idea
Most founders initially bootstrap their ventures using personal capital, sometimes complemented by support from family and friends. However, once a founder has a viable proof of concept they typically start to seek outside investment.
The starting point of external investment is normally Seed Enterprise Investment Scheme (SEIS) which is a UK government initiative designed to encourage investment into the earliest-stage startups. Companies must meet specific conditions relating to age, size, trading activities, and use of funds but for many startups it is a very attractive first step into the investment ecosystem.
SEIS primarily attracts angel investors rather than institutional funds because of the generous tax reliefs that are available for this type of investment. This stage of funding tends to take place at a very early stage of the company where the intention is for the funds to be used for development and due to this, the size of funding is usually between £50,000 and £250,000. For founders, SEIS can be a powerful fundraising tool because it makes investing significantly more attractive for other investments and a successful SEIS raise represents the first external validation that the business has investment potential.
Stage 2: using EIS to build early traction
Once a startup has gained initial traction, it often moves into Enterprise Investment Scheme (EIS) fundraising. EIS is designed for businesses that have progressed beyond the earliest stage but still require growth capital. EIS broadens the pool of potential investors. Many angel networks, syndicates, and specialist early-stage funds actively seek EIS-qualifying opportunities. EIS investments frequently range from £250,000 to several million pounds depending on the company's maturity and growth ambitions. While EIS funding can fuel rapid growth, investors will expect stronger evidence of commercial viability than they would at the SEIS stage including evidence meaningful traction with customers and the market. At this point, the conversation often shifts from "Can this work?" to "How big can this become?"
Stage 3: scaling through priced funding rounds
As startups mature, investment typically moves to priced rounds. In a priced round, investors purchase shares at an agreed valuation. These priced rounds are typically called Seed, Series A and Series B funding rounds. These funding rounds are typically larger and are aimed at later-stage companies with demonstrated market traction. By the time a company reaches a priced Seed or Series A round, investors usually expect the company to have an established revenue growth or a credible path to scale. Unlike simpler early-stage funding arrangements, priced investment rounds involve establishing a valuation for the company and negotiating a range of economic and governance rights. As a result, they generally require more extensive due diligence, legal documentation, and shareholder approvals, making the process longer and more complex.
Common startup fundraising mistakes to avoid
Securing investment at a low valuation too early can result in significant dilution, the effects of which may continue to impact founders and existing shareholders in future funding rounds. Accidentally breaching SEIS or EIS requirements can make fundraising significantly harder and damage investor confidence. A company focusing on capital alone. The right investor can provide strategic guidance, introductions, and operational support that often outweigh the monetary value of their investment.
Choosing the right funding structure for your startup
The funding ladder is more than a sequence of investment structures. It reflects a startup's journey from concept to scalable business. SEIS helps founders attract their first external investors. EIS supports growth as traction emerges. Priced rounds establish formal valuations and prepare businesses for institutional investment.
Understanding how each stage works allows founders to raise capital strategically, minimise unnecessary dilution, and build stronger relationships with investors.The most successful fundraising journeys are not about chasing the largest cheque, but about choosing the right funding structure at the right time.
We'll be attending Glasgow Tech Week and are always delighted to talk shop, or simply say hello! Please do get in touch if you are a founder or spin-out looking for guidance through investment rounds and building your business.
