Anthony Rose of SeedLegals breaks down the funding traps that cost founders equity, control, and momentum — before they even see it coming.
GROWTH PILLAR: Leadership & Ops
WHO THIS IS FOR: SMB owners / Solopreneurs / Startup founders / Leaders building systems
WHAT THEY'LL GAIN: How to structure your company right from day one, protect your equity through every funding round, build a board that works for you, and raise capital without handing over control.
Most founders don't lose control of their company in one dramatic moment. They lose it in small decisions made early, the wrong structure, the wrong board member, the wrong funding terms. Anthony Rose has seen it happen more than 50,000 times.
Anthony is the founder of SeedLegals, one of the world's leading legal tech platforms for startups. He headed up BBC iPlayer before returning to his startup roots, and he built SeedLegals so founders never have to overpay a lawyer or stumble through a funding round blind. He joins Bernie Franzgrote on Knack 4 Business to walk through the mistakes that quietly sink promising companies — and the straight path around them.
In this episode, Anthony covers company governance like a pyramid — CEO at the top, board in the middle, investors below — and why founders who don't understand that structure often end up working for the people they thought were just writing cheques. He explains why complex holding companies, super-voting shares, and LLC structures make startups uninvestable, and why keeping your legal setup simple is one of the smartest moves you can make.
He also breaks down the difference between advisors and board directors, why Shark Tank doesn't reflect real-life investing, what a SAFE is and why Y Combinator created it, and why IPOs are essentially extinct for most founders today. If you are thinking about raising capital, this is the episode to hear first.
Guest Links: Anthony Rose on LinkedIn | SeedLegals | SeedLegals on Facebook | SeedLegals on X | SeedLegals on Instagram | SeedLegals on LinkedIn
Recommended Reading: The Mom Test by Rob Fitzpatrick — Anthony's recommended approach to validating your idea with the right people.
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Connect with Bernie: info@kreativinsight.com
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Bernie (00:18)
Question to the audience. How do you raise money and set up your startup without making mistakes that could cost you, investors, equity or momentum? That's the problem our guest dives into.
In this episode, he shows you how to validate your idea properly, structure your company the right way from day one and pitch in a way that gets real traction with you're preparing to launch or raise funds, stick with us. He'll walk you through the smarter, safer path to funding your business and protecting your future. Our guest today is Anthony Rose from Seed Legals. He's the founder.
and one of the world's leading legal tech innovators, by many as the man who saved the BBC. for transforming its digital future.
A serial entrepreneur with a career spanning consumer tech, media, and now fundraising automation, Anthony has helped more than 50,000 startups navigate the minefield of raising capital through seed legals. He brings a rare mix of clarity, candor, and battle-tested experience. In this episode, he breaks down the top three mistakes founders make when raising money and hands you the practical blueprint to avoid them, build momentum, and also fund your business the smart way.
Anthony, it's an absolute pleasure having you here today. Thank you so much. you have a favorite quarter saying?
Anthony (01:33)
Thank you so much for having me on the show. And actually the topic you picked, know, raise money smartly without losing control is a big passion point for me and one where I see many startup founders making mistakes that need to be undone or cost them investment later. So if you let me run loose on this topic, I would love to go with the flow of that.
Bernie (01:54)
Well, you know what, Anthony? Let's run amok and we'll just dive into that immediate point because you know what? A lot of people go, I've got a great idea. I've got a genesis and sometimes, you know, it's truly a new innovation as opposed to revamp and people start rolling out, but they're not a big corporation. So where do we start?
Anthony (02:15)
All right, well, actually, let me tell you a little bit about my background. So my background originally is hardware, then streaming media. Then I was hired by the BBC, headed up BBC iPlayer, the UK version of Hulu. Then I left the BBC to get back to start-up roots, built a start-up, sold it, built a start-up, sold it, invested in a few. I got tired of paying lawyers, met my co-founder, genius, ex-VC and angel investor, and created Sea Legalz. So you don't need to go to a lawyer to build your start-up.
But with now 50,000 companies on our platform, I've seen everything. And I talked to literally a thousand founders, you know, a year and see the common mistakes that they make. And my goal is to, through our platform and through, you know, talks like this, help founders not make those mistakes. But why don't we dive in and talk about the control and smart money issue? So we'll talk a bit in a few minutes about maybe product development.
But the one thing I see sometimes is founders when they create their company, usually you create a common stock if in the US or ordinary shares in the UK for founders and then investors get preferred stock in the US and everyone gets one vote per share and so on. But sometimes you see founders thinking, ⁓ Mark Zuckerberg's got these special super non-voting shares.
And they try to come up with strange constructs and literally 100 % of the time founders do this, they have to undo it later because investors don't buy into it. And here's your problem, early stage founder, which is if you're a zillionaire, you can do whatever you want. But if you are going to start up investors and they're seeing dozens or hundreds of startups, all of which have the same Delaware C Corp.
with 10 million issued shares and the founders have got 9 million commons stock between them. You move right on from that onto what you're working on. But if something sticks out, you've got some weird setup, it's an LLC or you've got super voting stock, it's an immediate blocker. And why does the investor want to spend time or effort on somebody who's optimized the company for themselves?
rather than for the investor when there are all these other companies they can go to. So I'm going to spend a moment just talking about how company governance works because many founders just don't understand it. And if you get it wrong, you can get fired by your investors, which you really want to avoid doing or end up with far too much investor control in your company. So I like to think that company governance is like a pyramid. And the top of the pyramid is the CEO.
So as a CEO at Seedlegals, I can buy a new coffee machine. I don't need to ask anyone's permission. I just order a new coffee machine. But if I want to do something larger, like create a new subsidiary in a different country, I can't do that myself. I need to get board permission. So the next step down is your board of directors, which hopefully the founders should dominate by having more founders on the board than investors. So you control the board.
And then one step down from that, some things need investor consent. So if I want to sell the company, maybe I would make money and the investors would lose money. So their consent is needed. And the base of the pyramid is something where you need the approval of a majority of all shareholders for doing certain things. So once you understand this pyramid, then you know which things are really important for control. And that's usually to own the board. And of course, if you
dip below 50 % of the stock overall, the shareholders can vote to get someone else on the board. So you want to, as founders, maintain majority shareholding in your company for as long as possible, and you want to control the board as long as possible. And that means making smart decisions in early funding rounds about not diluting too much so that after a few rounds, you're less than 50 % equity and not getting more investors on the board than there are founders.
So that's your 101 on control and hopefully not getting fired by your investors.
Bernie (06:25)
When you're talking about buying the coffee maker versus something massive, ⁓ let's set up shop halfway around the globe in a country where they don't speak the language that we normally do. What is the demark point? Is it a dollar expense or ⁓ a capital commitment level? What's the threshold that you would say, here we need somebody's consent?
Unless of course it's written into a contract, when do you go? We should ask.
Anthony (06:54)
That is a great point and there two parts to it. One of them is if you do a price round as it's called in the US, you have a whole lot of funding round documents, a stock purchase agreement and a voting agreement and it will spell out for hiring anyone over the salary level or for incurring debt in the company beyond this level or for creating a subsidiary. So there are range of things often called reserved matters where you need board or investor consent. And so your goal.
You for investors, it's quite reasonable that they want consent rights on certain things because you could bankrupt the company by going, hey, we're pivoting to crypto exchange in Nevada.
speaker-2 (07:32)
We didn't invest in that. Don't do that.
Anthony (07:34)
So that reason needs investor consent. And so you define to avoid, you know, conflicts or ambiguity later when you do a funding round, which things need consent or not. The other thing to note is that a well-functioning board acts to do risk things. So if you want to do something that is risky, maybe you're betting the company or a good fraction of your, you know, expenditure on it or something.
Maybe you don't want to stick your butt on the line that much personally, and you want to make it a shared decision, the shared risk reward, so that if things don't go well, then it's not you who just acted unilaterally. And that means that even if it isn't one of these so-called reserve matters, it's a bigger decision. It's good and useful to go to the board. You get other people's views on things. Sometimes you've actually just having someone else's views is a very good thing. Of course,
Sometimes people have different views and importantly, sometimes investors are not aligned with the founders. The founders might want to a growing business that's profitable that will continue to pay them a great salary and grow maybe slowly. But the investors want to roll the dice and have a 50 X return or bust. But for a founder, that's no good at all. You don't want to go home to your spouse and go honey.
There's a 1 chance will be a unicorn and a 99 % chance will be bust in two years. What do you reckon? They're to say, honey, go get a proper day job. So that won't work. So you want the founders and investors generally to be aligned. But the board is often where players out where they're not aligned. Maybe the investors want you to pump for growth and the founders know it's too stuck in a work. We're going to run out of money. We'd have to fundraise again. We want to go slower. And those the the the fund.
pieces where it's also important that the founders have control over the board so that they don't lose control of their own company.
Bernie (09:32)
So, other than if you're a pure narcissist as a founder, you seek validation. So tell me this, why do so many founders ask the wrong people the wrong questions?
Anthony (09:43)
It is a very, very good point. I think that you don't really know who to trust for advice, right? So you'll see your Twitter feed filled with advice. And then how do you know if it's good or bad? I think one one indicator might be anyone who puts themselves out as an advisor and hasn't built their own company, exited, raised money themselves is probably going to have less good advice than somebody who's done that.
because it's easy to say do X or Y. And then when you're in the trenches yourself and you see a board dispute or you you've spoken to someone who's just gotten fired yesterday because their board didn't agree with them or the board refuses to let them or the investors refuse to let them sell the company and the company is going to go bankrupt because it's better for the investors that it goes bankrupt because they get their loss relief rather than the company, you know, growing slowly and not exiting.
know, these are the problems you come across. Yeah, so it's tricky to who to take good advice from.
Bernie (10:41)
Well, this leads me to another question on the same vein. I'm going to assume that if you assemble a board of directors, you're looking for different competencies. It's almost like crowdsourcing. Not everybody is, let's say it's a tech company, not everybody is a widget maker or a SaaS company. Some people have expertise in other channels. How do you then find that right mix of people?
And I get what you're saying. You don't want to overload it in the investors because then all of a sudden you can be ganged up on. How do you find that balance? then when you go, let's say someone says, listen, we should be doing this. How do you not get sucked into a game that's being played by another corporation? In other words, they're looking at you as a slice of juicy pie and they're just looking at how can we best get you in here by hook or crook? So, you know, it's just...
You know, it sounds Machiavellian, but how do you dodge that bullet or sit back and think of your next move so you don't ⁓ put your head in the chopping block quite by accident?
Anthony (11:43)
You've asked another passion point question from me. So. ⁓
Bernie (11:47)
I tried, I tried.
Anthony (11:48)
people often confuse two different things, which is I want an advisor, and I want a director on my company or board member, because that's what a board member is a director. So an advisor is someone that gives you advice, and you either give them money or you give them stock options for giving advice. And when they stop giving you advice, you stop giving them money or stock options, and you say goodbye to them. Or when you don't like the advice, you say thanks, good day. A board director is like the police.
They have a vote, which is the same as yours, and they can block the company doing things. If they gang up on you, they can get you fired. where founders often make mistakes is they go, I'd like these advisors. I'm going to get them on the board. I think that's a big mistake. The people on the board should be people who you really want as vote makers on what the company can do, noting that they may vote against you.
So the people on your board would typically be the founders, because somebody has to run the company and make decisions. And often investors who insist on a board seat, you don't necessarily want them, but they insist on it as part of their investment. If they're going to put $5 million in your company, they're going to want a board seat. Now they're going to sell you, how they're going to be amazing, and they're going to give you advice. I think investors upsell on this a lot. Three funding rounds later,
they've gotten bored of you and they've moved on to something else and they'll come back to your quarterly board meetings, but maybe they're super non-interested, they're not even reading the board minutes. They breeze in, they tell you you should pivot to a SaaS company and make more AI and then disappear. And that's entirely not useful. And I see a thumbs up from Wayne. But separately, companies might create what's called an advisory board.
So an advisory board is where you get your advisors. You can go for coffee or a beer or whatever, or come to a meeting that you set up with lots of PowerPoints and brainstorm that there's no official ruling or decision-making. These are just advisors. You're giving them stock options for giving you advice. And if they're not giving you good advice, thanks, we're done with that. And so I would really encourage people to think of these two different things. Be super careful about getting these well-meaning people as onto your board.
Because what happens when you are living and breathing 24-7 your company, they breeze in for a day a month with some random idea they picked up on the internet last week, which was fashionable, and then tell you you have to pivot to that, and you know it's not going to work because you can't build it, your customers don't want it, your sales team can't sell it, and there's some schmuck coming on, telling you you should do it, and you can't get rid of them. So anyway, there's my mini rant on having advisors on your board.
Bernie (14:30)
So 20 years ago, Americans started Shark Tank. And so tell me this, are you familiar with the model? Where three television people, okay, three television people go on stage.
and they get pitched and they own their companies and their pitch is actually televised and they do the dog and pony. And then the people who are on the board, yes or no for a piece of the action.
Anthony (14:55)
Right, yeah, I'm familiar with Shotank and Dragon's Den in the UK as well.
Bernie (15:01)
it.
Deggans Den was first and that was us. Woo! So is that an actual model that's sort of in real life as well or is it different?
Anthony (15:12)
No, that is television and real life is not television. So you don't meet investors and they go, I've got this pile of money here. So the dirty secret that most people don't realize is that most of those investments that you see on television actually fail at the due diligence stage. Only like a third of them actually happen because it turns out when people go, yeah, I've got a global patent. This is bullshit.
because a global patent would have cost you hundreds of thousands of dollars and taken years to get. And there's no such thing as a global patent. What they probably have is a patent application filed in the US or Europe or somewhere, which costs them, you know, $5,000 and will highly likely never get granted. And so these bold claims are made. You know, my my because my medical product, but it's never got approval yet. It doesn't work.
So, or they've taken on money beforehand and they've given away too much equity, whatever it might be. So on television, of course, there's a big pile of cash that realistically afterwards in the weeks or months that follow, a lot of them fall apart. But actually for the founders, they often don't mind because they got their television exposure and they may not have wanted the investment anyway, which might have been a really terrible deal terms.
The other thing on these shows is like, yeah, I'm going to give you $100,000 for 30 % equity. It sounds fantastic. Your company's now valued at $200,000 pre-money valuation, diluting 33%. But that's disaster. If you dilute 30 % in your first funding round, you're going to be pretty uninvestable pretty soon. Because by your second round, you're going to have less than 50 % equity in your company.
and the investors can get rid of you. you know, the deal terms on those programs also don't match reality.
Bernie (17:03)
in reading the Wall Street Journal or the Canadian Globe and Mail, the two most overused words were pitch deck, pitch deck, pitch deck, pitch deck. I know you got to tell the people you're looking for my something. What is a good pitch deck and how does it suck if it's done badly?
Anthony (17:20)
You've reached another one of my favorite topics, which is the art of the pitch. So here's what I find is you talk to a founder and they tell you excitedly what they're working on and it sounds awesome. You know, the passion they convey it. And then you say, send me the pitch deck and the pitch deck, you can't understand what on earth they're doing. So the pitch deck will say, you know, we use AI and blockchain to revolutionize insurance.
So do you wake up in the morning going, know what I need today is an AI and blockchain insurance revolution.
speaker-2 (17:50)
It's
nonsense! yeah?
Bernie (17:51)
Yeah, of course, that's exactly what I need. Three of them going down the road at the same time. Sorry.
speaker-2 (17:57)
And so what
Anthony (17:57)
I
do is I coach founders on how to turn that into a compelling pitch. And I think it goes the formula is, you know, something something is broken. It's insane. Here's how we fixing it. This is a founder backstory. The market is huge. You know, this this competition, this is why we better. This is our growth and how we're to be a unicorn. This is our traction so far. Meet the team. This is how much we fundraising.
you know, call me and you're selling the sizzle, not the steak, which is an old ad agency, you know, adage. And so, you know, what would often happen is I would, someone would send me the stick about, you know, AI and blockchain, something, something you literally cannot figure out what it is. And so I would coach them into turning into firstly, the first page is a lifestyle image of your actual consumer.
So maybe what your company does, the tagline, you know, the proposition is you paying 50 % too much on your household insurance each month. It's insane. We're going to save you 50 % by using AI blockchain, whatever it is. And now you're going to show a picture of a couple sitting on a bean bag in front of the fire or whatever with an iPad and your app on it. And then you can see immediately this is consumers at home, online platform.
happy people solving a problem with your company there. And that screen alone, and you you're paying too much for insurance, explains instantly what it is. And the investor is probably going to not only think about wanting to invest in your company, because other people are going to want it, maybe they're going to want it themselves. then you proceed from there. So that to me is the art of creating this ⁓ story arc about how you are
solving a big problem, you're unique and your team is a perfect one. It's a huge market. And by the way, we're raising and contact me. many people also forget the slide at the end, is, you know, we're raising contact me, because then you're looking at the slide going, this is very nice. Why did you send me this? What do you want? So you have to have the ask at the end.
Bernie (20:08)
As you're describing this, we've talked to other people that say, listen, ⁓ pitch, what is the old saying? You don't pitch the drill or the hammer, you pitch the hole and then you work it from that angle. And I get that piece. We also had a chat with another gentleman and he says, listen, he makes bedsheets. They're out of eucalyptus and what not, sustainable product, et cetera.
And the reason I'm mentioning it is because was just editing that podcast today. what I found interesting is he was going, listen, and this is when the product is live and it's in play. So maybe the first round of funding has gone through, et cetera. He realized a couple things that his king-sized bedsheets, people were a little more affluent. The standard bed size, queen size, et cetera.
There's more margin. And so he realized he didn't want to raise the price. He would shrink the price, but he would sell more volume and hence make more money, you know, have a return. That whole process, that whole analysis of going, you know, put the product in, in place, whether it's SaaS, widgets, whatever. Do you, is there an analysis that's kind of done saying, listen, now that we've done a, you know, gone from sandbox to live and now we're turning through it. This, this
of the product line, if there's a premium, really does well, this is its profile. And then if you step down one, it does really well, you get more uptake if you do that. Is that analysis also part of the whole process? Is that part of your board? How does that all kind of come together?
Anthony (21:36)
I mean, if we're talking specifically about pricing, then pricing is an art on its own. And I think that should be left to the sales team and the product team to iterate as rapidly as possible. It doesn't need to get others involved. Obviously, this is at a strategy level for the company. They might be aiming at a particular target market, or maybe there's, you know, competitive things. So there's some framing around it, but then let your team get on with it. So for example, it's e-legals.
kind of every year we redo our pricing plans and it's often they buy our sales team. They talk to customers, know, dozens of hundreds of times a day and they're getting ongoing feedback. I couldn't understand this plan. It's a bit complicated or you know, the funding landscapes change. So we don't want to raise this. We want to raise that. How does your price match or the competitors, you know, undercutting you. And so we're about to launch new pricing on Seedlegal is really driven by our sales team.
And so, you know, then it flows through to the rest of the company as CEO. I look at it and may tweak the wording so strategically it matches, you know, our purpose and mission and so on. And we don't do anything that doesn't feel right. But these should just be rapid iteration things. And, you know, I love the example that you gave, because when I go shopping for mattresses or or sheets, I'm also struck by why are the king ones a lot more expensive? I'm sure they're like 10 % larger than the queen.
What's the difference? then actually, you would never have known that actually we're selling to a different market, right? So they can afford to pay more. So we'll make our margin on that. That sounds quite interesting.
Bernie (23:11)
So often when I'm talking to a guest and they usually have a home run and train wreck stories. And sometimes our listeners love the train wrecks more than the home runs. But tell me either one you wanna do.
speaker-2 (23:27)
Well,
Anthony (23:28)
I
don't think I've got train wrecks. mean, usually it takes a few startups to work out which things to go for and which ones not. My earlier startups were social media startups. And you learn quickly that social media startups are really hard to raise investment for. B2B SaaS startups are much easier to raise investment. Why? Because B2B SaaS, generally your customer acquisition cost is fairly low. Your lifetime value is hopefully fairly high. You've got defined marketing channels.
and your cost of goods, you can grow rapidly at a low cost. Whereas anything that's consumer based, you've got to acquire a lot of consumers who may or may not pay for anything. And so you've got a freemium tier and then you have to convert them and it's fickle. one of the problems now whenever I, and I learned that I was able to raise that when I now see founders doing
You know, often a common thing these days is mental health apps. There are many, many of them and they cover all different market angles. Some of them are selling to consumers, are free customers, some of them are for companies who want to help their members, some of them for other, you know. But any of them that are for consumers, I always wonder how they're going to acquire customers at scale.
in a way that doesn't bankrupt themselves by spending all their investment money on customer acquisition.
Bernie (24:49)
Are you finding there's a trend right now or in the last year or even forecasting forward where you see startups focusing? Is it creating hard assets? Is it creating SaaS? Is it stuff that doesn't require shipping across and being tariffed the living heck out of, know, as it seems to be the bone of contention right now? Are you finding there's a certain... ⁓
the space that's seeing more activity than less in other areas?
Anthony (25:18)
It's a great question. think I look at it from two angles. One of them is, you know, from what's the market doing, it's obvious that fast growth AI companies are where the money's going, right? And one of the challenges is that because of the explosive growth of some AI startups, investors now go, right? No, you know, we're looking for 2X on your growth, dude, if you're doing less than 10X, we're not interested. And very few companies can do that. So
You know, will that be a bubble that bursts? We will see. I don't think it will burst, but I think that there going to be a lot of heavily overfunded AI companies and reality will set in and then investment money will flow back to the ones that they weren't investing in. But the other way to look at it is as a founder, you want to create a startup because you've got some passion point. You might want a better windshield wiper for your car because the last one was terrible and, you know, left streaks.
So for you, doesn't matter that AI companies are well-funded or not, you've got your project. And yeah, just because the market sentiment says one thing, does it mean you should give up on your dream? And I realized this when I was on some panel with investors and they were talking about the hot market segment being batteries and people should get into batteries. And I was looking at the audience going, there is zero people in the audience.
that are into battery chemistry. mean, it's a stupid thing to say, should they all give up on their bread making and their drones and their beers and, you know, then whatever it is that they're working on just because batteries are a hot technology. So I think you obviously want to use something that's driving you and you want to pursue that vision and dream that of course being realistic to see what your chances are of getting funding and who you competing with.
speaker-2 (26:44)
to say.
Anthony (27:09)
And also try to tap into, you know, whatever is the hot or fashionable segment with a little bit of sprinkling of AI pixie dust or whatever has needed so that without, you know, catching yourself so that you are promising something you can't deliver, you'll be caught out on so that it does, you know, get the eye of investors or at least they don't think that you're technology Luddite because you are not adopting the latest tech.
Bernie (27:36)
So here's a question that I know is one of your passion points. Most people 30 years ago dreamed about going public. They don't even use that language anymore, but the dream was the big equity investment. And what they didn't realize is they fundamentally sold their company and didn't even know it. And you might become a very, very well-paid employee or maybe even a well-paid employee with stock, but you sold your company.
And then the other ditch is, I'm going to bootstrap. I'm not going to eat, buy groceries for a year because I can bootstrap and I'll own it all. Can you weave me through that highway for me?
Anthony (28:14)
Yeah, I like that question. So, you know, there is, let's start with the beginning of the company and then get onto the IPO. So the bootstrapping, there's also a term called seed strapping these days. So the bootstrapping thing goes, you know, once upon a time I had to hire developers and buy servers and it was very expensive, but these days, you know, everything's in the cloud and there's AI. So maybe I can do more myself and I don't need to hire people. And so I can just fund it myself.
And I think that's a great aspiration. You absolutely should use lovable and vibe coding as much as you can. But the reality is there are no growing companies that are just one person. There are just too many things to do in the day. You do need software developers. You do need a marketing team and a sales team and a customer support team and someone to do the books. There's just an insane amount of stuff to do in a company. So the problem is if you bootstrapping,
Yes, you're not diluting, giving away some equity in your company, but years of your life will disappear. If your life has value, as soon as you prove that you can build something that people want and get a valuation such that you're not going to dilute too much, you're far better off taking someone else's money to grow faster. I you can build it yourself for two years or give away 15 % equity and build it in six months.
with other people whose money that you can now pay them. So I think by all means, of course, always start bootstrapping and on seed legal, I've got data that shows that founders put a median of about $35,000 of their own money into a company first, because no one invests on a PowerPoint. But at some point, unless you're independently wealthy,
you just can't afford it anymore. You know, you start spending a thousand dollars a month and then two and then four and then $8,000. Pretty soon, you're having a discussion with your partners like where this money is going. You know, you could have bought a whole lot of stuff. You could have a Ferrari pretty soon. Are you sure you want to keep putting? No. At some point you want to get other people's money because it doesn't make sense to put more of yours. So that's bootstrapping. But now there's a new term seed strapping. So bootstrapping is
Okay, I need some money to start. But some founders are now saying, and certainly posting on social, I only ever need one funding round because with AI tools and so on, I'm to raise like, you know, $500,000. And then I'll never need to raise again, because I'll have built something, it'll just take off on its own. And I quietly chuckle whenever I hear that, because it never happens. mean, well, there two problems.
Firstly, if your business is growing like crazy and taking off, it would be stupid to not raise more to grow faster and hire people and so on. Secondly, so there's no purpose to having a seed strapping strategy because if things are going well, you're naturally probably going to want to raise more and investors will be throwing money at you. The second problem is if you ever tell your investors
that you don't plan to raise another funding round, you've just made yourself uninvestable. Because investors make their money by selling their stock in a future round or on an exit of the company later. So if you're telling them you're on the go slow plan, I'm not going to raise more, I'm just going to make profit and keep growing, they go, that's awesome for you and useless for us. Sometimes they call it a hobby business. That's great for you, not so much for them.
So never ever tell your investor that you plan to seed strap because it's a poor investment piece. Whether you do, I mean, if you can get to profitability and not have to raise again, that's fantastic, right? Because fundraising is a pain. You do lose more control each funding round, but you know, you don't need to signpost it upfront and you can decide what to do when you get there.
And one other thing I've seen is that I think first time founders are obsessed like about losing control. my God, I'm giving away some equity. You only lose control when you get to some series A round or later and you've got theses on your board and you now heavily diluted. In the early days, this isn't a problem. So you don't need to obsess about that. You need to obsess that anyone's going to want your products.
and how to get some traction. And unless you can pay for it yourself, you need other money. So let's now switch to the IPO side. And basically, IPOs are dead. You know, once upon a time, were hundreds of IPOs a year. I think in the US, what, like a dozen last year, in the UK, there were the grand total of zero IPOs, as far as I know, on the London Stock Exchange. Why? Because it's so expensive and so onerous that, you know, in the UK, they're like,
8,000 company exits a year and zero IPOs. So I'm amused that at Seedlegals, when we build the funding round documents for people, you know, we put in all the legal wording for all the eventualities if things go well or not. And one of them is the provisions on an IPO. Realistically, the chance of your company IPO is kind of about the same as getting struck by lightning on a golf course. you know, aim for it.
speaker-2 (33:24)
It's good to.
Anthony (33:26)
But, you know, I think when you do see people with IPO, obviously there may be, you know, good cash to be had, but the public reporting and so on is so onerous that you may regret that just running your company and doing the stuff you want. Suddenly you've got these investor updates and then everything you post on social is scrutinized. And are you moving the stock price?
you know, activist shareholders, and then, you know, you may regret it. And I think that's one of the reasons that IPOs are down.
Bernie (33:57)
And you're structuring companies are not you, but when the the person structuring companies, do you ever find that, know, I'm to build a company. There we go. Right. But is a company within a company or something a chunk to it, whether it's a subsidiary or however you want to describe it, for example, there's certain restaurant chains, they'll own the property and then they'll sell you the the rights to market their
Anthony (34:24)
and franchising and so on.
Bernie (34:26)
Franchising, that something, are there different types of way of structuring it so that you're kind of protecting, you know, kind of core principles, but what you're offering for funding is still viable and, know, if someone says, I'm going to invest in it, it's not going to turn them off. But at the same time, it's almost like a safety net for the founder. Is that a whole new conversation?
Anthony (34:48)
Sorry.
No, no, that fits right in with some of the crazy things that founders do that make them uninvestable. I, you know, investors see lots of companies and if they see a company, it's a Delaware C Corp and the founders own the stock directly and they're raising with the safe. It's like, great. All that friction has disappeared about the legals and the company structure. Just tell me what you do.
But if they use the investors going to tell me about the company, well, I've got this holding company, and then there's one in the Cayman Islands and my co founder has it. It's like, dude, what are you trying to do? Is this a tax dodge? Are you trying to screw me? Do you want to be able to get out of the company without me being able to stop you? What happens if you sell your stock in this holding company and you have sold it to someone else? You're out of the company, but I had no control over that. So
You create no end of complexity, legal costs, and you reduce your investability. what's interesting in the UK, like literally 99 % of the time, the founders own the stock in the company themselves. 1 % of the time, I see customers on seed legals with this holding company structure. And every time, they're Australians. For some reason, in Australia, they love this holding company structure. In other countries, not.
And I think whenever I have founders with this holding company thing, I ask them, you know, what the purpose of it is. And often it's not clear. They've like heard they think a company like with many subsidiaries is much more sexier. But no, it just makes your tax findings insanely complicated, makes your life complicated. I mean, as your company grows, you naturally are going to subsidiaries in other countries. So
Seedlegals is in the US, we create a subsidiary. We're in France, we create a subsidiary. These cost you few hundred dollars or a few thousand dollars. You do it when you're ready. But make life simple for yourself and your investors, not ⁓ complicated. The other thing is they're often really good tax incentives to help founders go with the simple one. And by going with the complicated group things, you're actually causing yourself more tax issues. So for example, in the US, there's
qualified small business stock. So if the founders own the stock in their company, when they sell the company, they'll pay no federal capital gains tax up to $10 million. If it's done through a holding company, is that still going to apply? Is it not? Maybe the money's in the holding company, but then you can't get it out of the holding company without paying tax. So you've made it more complicated for yourself. So yeah, I'm not a big fan of these complex structures. And by the way, you know,
For some businesses, they work. So if you're doing a restaurant chain, the franchise model means necessarily you creating lots of these somewhat independent companies that, you know, license something from a top code. There may be good reasons to do it, but there are also a whole lot of, you know, bad reasons. And often accountants are notorious at coming up with these bad reasons. Oh, my accountant said I should own my stock in a holding company. Have you asked them why?
don't know why or maybe it works fine if you're a cheese shop that doesn't work if you're raising from ⁓ equity investors because that structure is a problem or means they can't get their QSBS or because it's being held by another company. There are all sorts of complicated things that come up.
Bernie (38:13)
So complicated is bad.
Anthony (38:14)
that complicate is bad. And by the way, I think of it a bit like funding round legals is a bit like renting a car. So you go to Italy on holiday, and you get out at the airport and you go to the rental car place and you jump in your rental car. And if the pedal and the indicators and everything is exactly where you expect it to be, you could just go off and drive. But if that manufacturers decided to move all the stuff around, you sit there trying to figure out
What the hell's going on? Maybe at some point you get out and you go, can you give me a car with everything in the same place? And I think it's like that was funding around legal, which is investors see lots and lots of companies. And if they're using safe, so they're using the standard NVCA documents in the US or BVCA in the UK, they go, great, we've seen these docs before. Let's just talk about your valuation. You know, who has a board seat, these standard provisions I'm in.
hang on, let me unpick this UML diagram of your corporate structure. You know, I've got others, I've got someone else calling, have a nice day. So I think when it comes to funding around legals, you want yours to be the same as everyone else's, and you're going to focus, I mean, the wording, you're just going to focus on the key deal terms that are important for you and the investor.
Bernie (39:28)
You've used a term a couple of times that is very known to your industry and unknown to us. What's safe?
Anthony (39:34)
Right. Okay. So here's the background. So when you do a funding round in the US, you create these complicated set of documents, which are now highly standardized. There's a National Venture Capital Association, NVCA, and over decades, they've gotten together with law firms and said, these are the standard set of documents for a funding round. But in the US, the cost of legal
lawyers in a funding round, like $50,000 or $100,000 or more. It's insane. So Y Combinator came up a few years, about 10 years ago now, with something called a SAFE, Simple Agreement for Future Equity. It says instead of all these complicated documents, we're going to like kick the can down the road. And we have this like three page document that says, I'm going to give you money now. And you're going to give me stock one day when you do your funding round later.
And because of this, none of us need to go to lawyers. And we're going to agree that when you do your funding round, you're going to give me stock, but because I've come in early, I might get a discount or maybe it'll be at a valuation cap. So because I'm coming in now, if you do your next round at a valuation greater than five million dollars, you'll still give me stock as if it's five million dollar valuation. these safes have become hugely popular.
and founders are using it so that they don't need to spend a lot of money on the legal agreements for a funding round until later.
Bernie (40:57)
Andy, I mean, Anthony, you've got me excited. I'm hoping you've got my listeners excited. If they are, how do they get you? All right.
Anthony (41:05)
So
good point. So head over to Seedlegals.com. You can also reach me, Anthony at Seedlegals.com or Anthony Rose on LinkedIn. And I'm delighted to answer any questions on any of the things that you can see I'm quite passionate about here.
Bernie (41:19)
I say thank you to Anthony Rose, my co-host, Pratt, and you the Knack for Business listeners. Appreciate your time here today. So if you're looking to start up, you're looking to understand how to structure things from a legal perspective, I there are a lot of nuances here. Keeping it simple is the best. That way, you know, people will find you attractive and that's what you're looking for. You're looking for funding. You're looking for rounds of funding, but at the same time, not so much so that you lose control. Reach out to Anthony because, know, that's...
He can help you in that space and set up the paperwork accordingly.