Step 1: Clean Up Your Pre-Seed Cap Table
Before you raise a seed round, your cap table must be accurate and complete. This means reconciling it with Companies House records, confirming all convertible instruments are properly documented, and ensuring vesting schedules are in place for all founders.
Common issues to fix before going to investors: shares issued but not filed with Companies House (SH01 missing), founder shares without vesting agreements, convertible notes with unclear conversion terms, and option pool that was discussed but never formally authorised by the board.
Run a Companies House check: download your company's filing history and confirm that every share allotment matches your internal cap table. If there are discrepancies, fix them before investor due diligence starts — not during it.
Step 2: Model the Round Economics
Before negotiating with investors, model the round yourself. You need to understand how much you are giving up under different scenarios.
Pre-money valuation: This is the value of your company before the new investment. If you are raising £500K at a £2M pre-money, the post-money valuation is £2.5M, and investors get 20%.
Option pool: Investors typically want a 10-15% option pool included in the pre-money valuation. This means the pool dilutes founders, not investors. If the pre-money is £2M and you create a 10% pool, the effective pre-money for founders is £1.8M (the pool is carved out of your equity, not the investor's).
Convertible note conversion: If you have outstanding convertible notes with a cap lower than the round's pre-money valuation, they convert at the cap — creating additional dilution for founders. Model this precisely: a £100K note with a £1M cap converting into a round at £2M pre-money takes 10% of pre-money equity, not 5%.
Step 3: Structure the Share Classes
At seed stage, you will typically have two share classes: Ordinary shares (held by founders and possibly early angels) and Seed shares (issued to the new round's investors). If you raised a SEIS round earlier, those investors may hold a separate class.
Seed shares usually carry the same economic rights as ordinary shares (same dividends, same pro-rata share of exit proceeds) but may include additional governance rights: a board seat, information rights, consent rights on reserved matters, and anti-dilution protection.
For SEIS/EIS purposes, the Seed shares must be "full risk" ordinary shares. They cannot have a preferential right to capital on a winding-up that exceeds a reasonable commercial return. If your investor wants a 1x liquidation preference, discuss with your lawyer whether this can be structured in the shareholder agreement (contractual) rather than in the share rights (constitutional) to preserve EIS eligibility.
Step 4: Calculate Post-Round Ownership
Here is a worked example for a typical UK seed round.
Shareholder
Shares
Issued %
Fully Diluted %
Founder A
550,000
38.6%
33.0%
Founder B
450,000
31.6%
27.0%
SEIS Angels
150,000
10.5%
9.0%
Conv. Note (converted)
100,000
7.0%
6.0%
Seed Investor
175,000
12.3%
10.5%
Option Pool (unallocated)
—
—
14.5%
Total
1,425,000
100%
100%
Notice the difference between issued and fully diluted percentages. Founder A holds 38.6% of issued shares but only 33.0% on a fully diluted basis — because the option pool and unexercised options reduce everyone's percentage. Investors always think in fully diluted terms. So should you.
Step 5: Set Up the Option Pool
Most seed investors will require a 10-15% option pool as part of the deal. The pool is reserved for future employee grants — typically using an EMI (Enterprise Management Incentive) scheme, which gives employees the most favourable tax treatment (capital gains tax at 10% on exercise, rather than income tax at up to 45%).
The pool should be sized based on your hiring plan for the next 18-24 months. If you plan to hire a CTO (3-5% equity), two senior engineers (1-2% each), and a head of sales (1-2%), you need a 7-11% pool. Adding a buffer for unexpected hires, a 10-12% pool is reasonable. Resist investor pressure for a 20% pool — it dilutes founders without a clear need.
Apply for HMRC EMI advance approval before making grants. EMI-qualifying options are exempt from income tax and National Insurance on exercise, and the gain is taxed at 10% CGT (under Business Asset Disposal Relief, formerly Entrepreneurs' Relief, on the first £1M of lifetime gains). The company must have fewer than 250 employees and gross assets under £30M to qualify for EMI.
Step 6: File Everything
After closing the seed round, file within these deadlines:
Return of Allotments (SH01)
Within 1 month of share issue. Criminal offence for directors if late.
Updated Articles of Association
Within 15 days of the special resolution adopting new articles (if share classes changed).
Director appointments (AP01)
Within 14 days of the appointment of any new director (e.g., investor board seat).
EMI option notifications
Within 92 days of each individual option grant, via the company's online ERS service with HMRC.
SEIS/EIS compliance statement
After the trade has been carried on for at least 4 months (or if less than 4 months, when the company starts trading). File via the EIS1 form.
CapBrief
Model Your Seed Round Before You Negotiate
Upload your pre-round cap table and CapBrief models different seed round scenarios — varying the pre-money, investment size, option pool, and convertible note terms — so you know exactly what you are giving up before you sign.
Try CapBrief Free →Frequently Asked
What should a cap table look like before a seed round?
Before a seed round, a clean cap table has: founder shares with vesting schedules, any angel/pre-seed investors (either as shareholders or convertible note holders), and an authorised but unallocated option pool. Each founder should be listed with their share count, share class (ordinary), vesting start date, and cliff date. Convertible notes appear as a separate line with principal, interest rate, cap, and discount terms. The option pool appears as a reserved block showing total authorised options and any grants already made.
How much dilution should I expect at seed stage?
UK seed rounds typically dilute founders by 15-25%. If you raise £500K at a £2M pre-money valuation, investors get 20% of the post-money company (£500K / £2.5M). Add a 10% option pool expansion and founders might go from 100% to 70% ownership after the seed round. This is normal. The key is ensuring the price per share reflects genuine traction, not just hope — otherwise you are giving away equity too cheaply.
Should I create an option pool before or during the seed round?
Before, if you want to preserve your negotiating position. When an investor says "we need a 15% option pool," they mean 15% of the pre-money company — which dilutes only the founders, not the new investor. If you create the pool before the round, you can negotiate its size as part of the pre-money valuation. Creating it during the round means the dilution comes entirely from founder equity. This is the single biggest source of unexpected dilution at seed stage.
What share class do seed investors get?
UK seed investors typically receive a new class of shares — often called "Seed" shares or "A Ordinary" shares. These carry the same economic rights as founder ordinary shares but may include additional rights: anti-dilution protection, information rights, and board observer or board seat rights. In SEIS/EIS rounds, the shares must be "full risk" ordinary shares to qualify for tax relief — preference shares and guaranteed return mechanisms will disqualify the entire round.
How do convertible notes appear on a seed-round cap table?
Before conversion, convertible notes appear as a separate section showing the principal amount, interest accrued, conversion cap, and discount rate. When the seed round closes and the notes convert, the note holders move to the shareholder section with their converted share count calculated using whichever mechanism (cap or discount) gives them more shares. The fully diluted cap table should always include convertible notes — even before conversion — to give a realistic ownership picture.
What filings are required at Companies House after a seed round?
You must file a Return of Allotments (SH01 form) within one month of issuing new shares. This includes details of the shares issued: number, class, nominal value, and amount paid. If you created a new share class, you may also need to file amended articles of association. If new directors were appointed (e.g., an investor board seat), file form AP01 (individual) or AP02 (corporate). Late filing of the SH01 is a criminal offence for directors — set a calendar reminder for the day shares are issued.