How Much Equity Should I Offer My First Investors?

The question founders ask most often about early funding is not "how do I find investors?" but "how much of my company should I give them?" It sounds like a negotiation question, but it is really a question about control, trajectory, and what your company looks like in five years when you have taken three more rounds of capital and the maths has quietly been working against you the whole time.

Getting early equity decisions right costs nothing. Getting them wrong can cost you control of the thing you built.

The honest answer is that there is no single right number. What there is, though, is a range that experienced investors recognise, a set of structures that make your cap table look clean or messy to the next person in, and a handful of decisions made at pre-seed that follow the business through every round after it. Getting those decisions right at the start costs nothing. Getting them wrong can cost you control of the thing you built.

We have worked with founders at various stages of this process, from a niche commodity trading platform client who came to us pre-build with no funding and needed everything from a refined USP to SEIS registration, to a trading card platform founder who started with nothing but an idea and some technical skills and ended up in a far stronger position than most first-time founders by making a few smart early calls. What we saw across those projects shaped how we think about this, and that thinking is what this article tries to share.

This is not legal advice and it is not a substitute for a good startup solicitor. But it is a grounded guide to what normal looks like, what to watch for, and where founders most often give away more than they needed to.

What Equity Percentage Is Normal at Pre-Seed and Seed?

The range investors typically expect at pre-seed sits somewhere between 10% and 25% of the company, depending on how much they are putting in, how early the stage is, and what leverage you have as a founder. Seed rounds tend to sit in a similar band, though by seed you usually have something to show, which shifts the negotiation.

The figure that matters more than the percentage, though, is the implied valuation. If an investor puts in £100,000 for 20%, they are valuing your company at £500,000. Whether that is reasonable depends entirely on what exists at the time of the investment, and at pre-seed, what exists is often very little. That is the tension the whole conversation lives inside.

Why percentages vary so widely

Sector, geography, the investor's fund size, and how competitive your round is all move the number. A founder with a working prototype, early users, and two investors already committed is in a completely different position from one with a deck and a dream. Both are raising pre-seed, but the equity they give up will look very different.

According to Carta, 2025, pre-seed SAFE valuation caps range from $7.5 million for rounds under $250,000, with higher caps for larger raises between $1 million and $2.5 million. That spread reflects just how much variation sits within what people call a single stage.

How Valuation Is Determined Before You Have Revenue

Pre-revenue valuation is part science and part negotiation. Without revenue, an investor cannot value your business on multiples. So they work from other signals: the size of the market, the strength of the team, comparable companies at the same stage, and the quality of the thinking behind the product.

When we worked with a client building a niche commodity trading platform, one of the first things we did was build the financial model that would underpin any valuation conversation. Because the platform was commission-based rather than a flat fee, the projections were considerably more involved. We had to model user acquisition per month, monthly churn, average transaction frequency across a user's lifetime, the conversion rate between downloads and active revenue-generating users, commission rates, platform fees, and estimated dispute amounts. That gave us credible one-, three-, and five-year forecasts that an investor could stress-test.

Benchmarking when no direct comparable exists

For that same trading platform, no direct equivalent existed in the market. So we identified products performing some aspects of what the platform would do, examined their revenue and subscription models, and used those as a baseline. Where a comparable product already had strong traction, we scaled our projections down significantly to reflect the reality of launching something new into the same space. That kind of disciplined benchmarking is what turns a valuation conversation from a guess into something defensible.

Investors are buying a position in what they believe this becomes. Your job in any pre-revenue valuation conversation is to make that belief as well-evidenced as possible.

Dilution: What It Is and How It Compounds Across Rounds

Dilution is what happens to your ownership percentage each time new shares are issued. You do not lose shares. You still own the same number of shares you always did. But as the total share count grows, your slice of the total gets smaller. At pre-seed this feels abstract, but by Series B it is very concrete.

The maths compounds quickly. Each round dilutes every existing shareholder, including you. So if you give up 20% at pre-seed, then 20% at seed, your remaining 80% from the first round becomes roughly 64% before any further dilution from employee option pools or convertible instruments.

Dilution compounds across rounds, and by Series B the maths has been working against you for years.

According to Index Ventures, founders experience an average of around 28% dilution from seed to Series A, and by Series B founders own on average less than 30% of the business while investors own more than 55%. Those figures are averages, and some founders retain considerably more. But they illustrate why the decisions made at the very first round carry weight through every round that follows.

Why early terms matter more than early percentages

The percentage you give up at pre-seed matters. The terms attached to that equity matter more. Anti-dilution protections, participation rights, and option pool placement can all shift your effective ownership in ways the headline percentage does not reveal. We will come back to these.

SEIS and EIS: How Tax Relief Schemes Change the Conversation

In the UK, the Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS) give individual investors significant tax relief on investments in qualifying early-stage companies. SEIS offers 50% income tax relief on investments up to £200,000 per investor per tax year, alongside capital gains exemptions. EIS offers 30% relief on investments up to £1 million.

For a founder, this changes the conversation in a practical way. An investor putting £50,000 into your SEIS-qualifying company effectively risks £25,000 of their own money, because the government returns the other half through tax relief. That lowers the perceived risk of the investment, which makes investors more willing to back early-stage companies and at better terms for the founder.

When we worked with the niche commodity trading platform client, helping them obtain SEIS registration was one of the first structural steps we supported. It is not a difficult process, but it needs to happen at the right time and in the right sequence. A company that has already accepted investment before applying for SEIS status creates compliance problems for itself and its investors.

How SEIS fits a staged fundraising strategy

For that client, SEIS registration formed part of a staged approach: friends and family funding first, with SEIS making those early investments more attractive, followed by matched funding with institutional investors at seed. That sequencing is worth thinking about deliberately rather than arriving at it by accident.

Apply for SEIS advance assurance from HMRC before you take any investment, not after. Once you have accepted money, it is too late to retrospectively qualify that round under SEIS.

Friends, Family and Angels Before Institutional Money

Most pre-seed rounds do not start with a VC. They start with people who already believe in the founder, often before they believe in the product. Friends and family rounds are common at the very earliest stage, and angel investors fill the space between that and institutional money. Understanding how each of these groups thinks about equity helps you approach each conversation appropriately.

Friends and family investors are usually backing you personally. They have lower due diligence expectations and more flexibility on terms. The risk is that mixing personal relationships with financial ones can damage both if things go wrong. Keep the paperwork formal even when the relationship is not.

Angel investors operate differently. They have usually made money from building or selling something themselves, and they often bring experience or connections alongside capital. The best angels add more than money. The equity conversation with an angel is shaped by what else they are bringing and how active they intend to be.

The trading card founder's approach

We worked with a client who had an idea for a trading card trading platform but no funding and only some technical skills from a gaming background. Rather than going straight to angels or VCs, he spoke to friends and family and got significant buy-in from his network. That gave him enough runway to build a demonstrable product, which then put him in a much stronger position for any subsequent funding conversations. He used the natural order of the ecosystem rather than fighting against it.

When raising from friends and family, use a simple, standard convertible note or SEIS-qualifying share agreement rather than negotiating bespoke terms. Bespoke terms at this stage often create cap table problems later.

The Value of Having Something to Show

One of the most consistent things we observe across early-stage funding conversations is that a founder with a working product, even a rough one, is in a categorically different negotiating position from one with a deck. Investors can react to something they can interact with. They cannot react to a slide the same way.

The trading card platform founder we worked with struggled to get real traction through pitch materials alone. Once he had built a vibe-coded version of the product, something functional enough to demo the core experience, that changed the nature of every conversation he had. He was no longer asking investors to imagine the product. He was showing it to them. That shift is harder to overstate than it sounds.

A working prototype also signals something about the founder. It shows commitment, resourcefulness, and the ability to ship. Those are qualities investors are backing as much as the idea itself. A founder who has built something scrappy but real is demonstrating all three without having to say so.

What "demonstrable" actually means

Demonstrable does not mean polished. It means interactive and functional enough to show the core value proposition in action. A prototype that lets an investor click through the primary user journey, even if it breaks at the edges, does far more work than the most beautifully designed pitch deck. Build enough to show the thing, not enough to launch the thing.

Launching and iterating is almost always a better use of early capital than perfecting before launch. Most founders who spend too long perfecting run out of money before they learn anything real from the market.

Term Sheet Clauses That Cause Problems at Series A

A term sheet is a set of structural commitments that sit inside your company until they are renegotiated or the company exits. Some clauses that seem reasonable at pre-seed become genuine obstacles when a Series A investor runs due diligence and finds them sitting in your cap table.

The clauses that cause the most friction at Series A tend to cluster around a few areas.

• Liquidation preferences that pay early investors back two or three times their money before anyone else sees a return
• Full-ratchet anti-dilution that resets an investor's ownership whenever a down round occurs
• Drag-along provisions written so broadly that a single early investor can force a sale
• Consent rights so wide that routine business decisions require early investor approval
• Information rights that require board-level reporting from a company that is still pre-product

Series A investors will read every one of these. A cap table with aggressive early-stage terms signals either a founder who did not get proper legal advice or early investors who extracted poor terms. Either reading creates hesitation.

The simplest protection is to use standard documents. In the UK, the British Business Bank's model documents and the BVCA's standard term sheet are widely recognised. Deviating from them should require a deliberate reason, not a negotiating concession made under pressure.

Pro-Rata Rights, Anti-Dilution and Other Terms to Scrutinise

Beyond the clauses that actively cause problems at Series A, there are terms that simply need to be understood properly before signing them. Pro-rata rights and anti-dilution provisions are the two that founders most often agree to without fully grasping what they are agreeing to.

Pro-rata rights

A pro-rata right gives an existing investor the right to participate in future rounds to maintain their ownership percentage. For an early-stage angel who backed you at risk, this is a reasonable ask. The problem arises when the pro-rata obligation is so large that it constrains your ability to bring in new investors at later stages. A Series A lead investor typically wants to take a significant new position. If your cap table is full of existing investors all exercising pro-rata rights, there is no room for the new money without a fight.

Anti-dilution provisions

Anti-dilution clauses protect an investor if you raise a subsequent round at a lower valuation than theirs. Weighted-average anti-dilution is standard and reasonable. Full-ratchet anti-dilution, which resets the investor's price to the new lower price on their entire holding, is aggressive and almost never necessary to agree to at pre-seed stage. The distinction matters enormously in a down round scenario.

Ask any investor proposing unusual terms to explain why they are departing from the BVCA standard. If they cannot give a clear answer, the term exists to benefit them, and you should push back on it.

Founder Equity, Vesting and Co-Founder Splits

Before worrying about investor equity, get your own house in order. The equity split between co-founders and the vesting schedule attached to it are the two structural decisions most likely to cause a serious problem inside the company before any investor sees a problem outside it.

Co-founder splits should reflect the realistic contribution each person will make over the full life of the business, not just what each person has done so far. Splitting 50/50 to avoid a conversation is common and often wrong. A founder who contributes the idea but does less of the ongoing work resents the person doing more. The person doing more resents the person doing less. Having that conversation early, even if it is uncomfortable, is far better than having it mid-build when the relationship is already under pressure.

Vesting protects everyone

Vesting ties equity ownership to continued contribution over time. A standard vesting schedule runs over four years with a one-year cliff, meaning a co-founder who leaves in month eleven takes no equity with them. This protects remaining founders and investors from a scenario where someone walks away with a significant equity stake having contributed very little to the long-term business.

Investors expect founder vesting to be in place. A pre-seed company where two co-founders own all their equity outright, with no vesting, is a structure that makes institutional investors uncomfortable. It signals a founder team that has not thought carefully about what happens if someone leaves.

Employee Option Pools and When to Create Them

An employee option pool reserves a portion of the company's shares for future employees, advisors, and sometimes contractors. It is a mechanism for attracting talent when the company cannot pay market salaries, and it is expected by institutional investors from seed onwards.

The timing of the option pool matters as much as its size. Investors typically ask for the option pool to be created before a priced round closes, which means the dilution from the pool falls on existing shareholders, including the founders, rather than being shared proportionally between the founders and the new investor. Founders who do not notice this structure end up diluted more than the headline deal terms suggest.

According to HSBC Innovation Banking, early-stage employee option pools commonly land in the 10 to 15 percent range. The right size depends on how aggressively you plan to hire in the next 12 to 18 months and whether you will need to attract senior technical talent who expects a meaningful equity position.

Unissued options still dilute you

One point that confuses founders early on: options in the pool that have not yet been granted to anyone still count against your ownership percentage in a fully diluted cap table. Investors calculate ownership on a fully diluted basis. Creating a 15% option pool does not just affect future hires. It affects the ownership percentages shown to the next investor from day one of that round closing.

What Investors Actually Expect to Own

There is a practical range that institutional investors at seed work from when thinking about their target ownership. Most seed-stage VCs want to own somewhere between 10% and 25% of a company post-investment, with 15% to 20% being the most common target. This is not arbitrary. It reflects the ownership stake needed to make the investment meaningful relative to the fund's return model.

A seed VC running a fund of £50 million needs every company they back to have the potential to return a meaningful multiple of that fund. If they own 10% of a company that exits at £20 million, their return is £2 million. That is unlikely to make a measurable difference to a £50 million fund. The maths of venture capital pushes investors toward maintaining meaningful ownership through multiple rounds, which is where pro-rata rights become important to them.

Angel investors have more flexibility. A single angel investing £25,000 of their own money does not have a fund model to satisfy. They are making a personal bet and their expected ownership reflects that. Angels may be comfortable with 3% to 5% for a small cheque at a reasonable valuation, where a VC in the same conversation would find that position too small to be worth managing.

What this means for your round structure

If you know an institutional seed investor wants 15% to 20%, you can work backwards. If you are raising £500,000 at seed, a 20% stake implies a £2.5 million pre-money valuation. Whether that valuation is defensible depends on what you have built, what traction you have, and how comparable companies at the same stage have been valued.

When to Push Back and When to Accept the Standard

Not every term an investor puts in front of you is negotiable, and not every negotiation is worth having. The skill is knowing which terms to accept because they are genuinely standard, which to push back on because they are aggressive, and which to flag because they create downstream problems even if they seem reasonable today.

The terms worth accepting without a fight include standard liquidation preferences at 1x non-participating, information rights proportionate to the investment size, a board observer seat for a meaningful investor, and standard anti-dilution provisions on a weighted-average basis. These are market-standard for good reasons and pushing back on them signals inexperience rather than sophistication.

The terms worth pushing back on include anything above 1x liquidation preference at pre-seed, full-ratchet anti-dilution, consent rights over hiring or spending decisions below a reasonable threshold, and option pool creation requirements that are larger than your actual hiring plan for the next 18 months.

Your leverage comes from alternatives

Negotiating leverage in a funding round comes almost entirely from having alternatives. A founder in conversation with three investors pushes back more effectively than one in conversation with one. This is a circular problem at the very first round, because you often need the first investor to attract the second. Building a working product, getting SEIS registration in place, and securing commitments from friends and family first all function as leverage-builders before institutional conversations begin.

According to Carta, 2025, median Series A dilution reached roughly 17.9 percent in Q1 2025 and has been declining. That trend reflects founders gaining leverage as the funding market matures and more standard terms become widely understood.

Conclusion

Equity decisions made at pre-seed follow a company for its entire life. The percentage matters, but the terms attached to that percentage, the vesting structure protecting co-founders, the timing of the option pool, and the structural choices around SEIS registration all matter as much or more. A founder who understands these things going into a first funding conversation is in a fundamentally different position from one who is learning them on the fly.

What we saw across our work with early-stage founders, from the commodity trading platform client to the trading card founder who built his way into a stronger position, is that the founders who did the structural thinking early spent less time unpicking problems later. The ones who moved fast on terms they did not fully understand often found those terms sitting in their cap table years later, shaping decisions they thought were entirely theirs to make.

None of this requires a finance background. It requires slowing down slightly at the moments that most founders speed through, which is the term sheet arriving after weeks of conversations and the natural instinct being to just sign and get back to building.

If you are working through your first funding round and want to think carefully about the structure before you sign anything, let's talk through your fundraising plan.

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