Raising Initial Capital


The funding journey of a company can be very short or very long. Typically, it follows a sequential pattern.

Initial investors are often friends and family members. The first external investors are often angel investors. Simultaneously, the company might also raise capital from Enterprise Ireland. Increasingly, companies are also spending time in incubators where they get insights and advice on company-building, these being particularly valuable to the first-time entrepreneur.

Friends and Family

Friends and family are the first obvious source of capital for a new venture. This capital helps founders to get going and launch the company. However, as the company develops, having friends and family capital can put strains on those relationships. It is always best to take this capital in as loans and repay them from future capital raises, as such loans are usually quite small relative to the size of future fundraising rounds.


An angel investor is usually a high net-worth individual who invests in companies at an early stage in exchange for equity, and who also may wish to be involved to an extent in the company’s business. The ideal angel is someone who is high-profile and well-connected in your industry, has prior experience investing in high-risk startups, and is familiar with the growth and financing trajectory of such companies.

Not all angel investors are created equally. While having the right angel on your cap table can be a real asset, choosing the wrong angel can be a disaster. 

It is really important to have the same type of conversation with angels that you initially have with your co-founders — both parties need to know what is expected before you set out. Discussing topics like the level of angel involvement in the company, financing strategy, board evolution, and timeline-to-exit is vital to starting an angel relationship off on the right foot.

Halo Business Angel Network has some really useful information about what to expect as part of an angel funding process. See its Raising Business Angel Investment Insights for Entrepreneurs (.pdf) for more.

Enterprise Ireland CSF

Enterprise Ireland offers early-stage finance via its Competitive Start Fund. CSF investment terms are standard:

  • €50k for 10% ordinary shares (in one or two tranches)
  • a small (€5k) matching investment in the company is required, usually from the founders

The template CSF Term Sheet is available from Enterprise Ireland here (.pdf).

Incubators and Accelerators

There are lots of places where you can find lists of incubators, accelerators, and labs. For Irish companies, The Digital Times has a list here and the NDRC has another great list here. This manual looks only at the legal/corporate elements of participating in an incubator or accepting early finance; it will not go into the various benefits offered by each programme.

Some incubator programmes offer support and, in some cases, cash, for free and with no equity requirement.

“Programme Hopping”

There are many incubator programmes directed at pre-seed and/or pre-revenue companies. This means that you could relatively easily participate in more than one startup programme before you obtain a large institutional investment.

While participation in multiple startup programmes may seem tempting, bear in mind that, if you have participated in programmes where equity must be allotted, your cap table may be complicated and burdensome by the time you begin looking for a large VC investment.

VCs generally expect 85%+ of the equity to be still in the hands of the founders/executive team when considering €1M+ venture rounds. A clean and simple cap table is an advantage when you come to later-stage investment.

As the saying goes, “if you’re explaining, you’re losing” — so have that in the back of your mind if you plan on participating in more than one equity-bearing incubator programme.

Early Investment Terms

At the early stage, investment terms may consist of:

  • warrants
  • convertible loans
  • equity investment

Please see the Capital Structure and Share Options section for a general description of how warrants and convertible loans operate.


Warrants are not often used by incubators, angels, or seed investors in Ireland. If they are used, expect to see the following:

  • a defined trigger date at which the warrant can be exercised
  • a time limit within which the warrant can be exercised such that it’s not open-ended
  • if the exercise price is related to a future funding round, an exercise price of not more than 20% discount off the price of that future funding round
  • a requirement that the warrant-holder signs up to any existing (post-investment) shareholders’ agreements in force at the time of exercise

One of Seedcamp’s pre-seed programmes operates on the basis of the company granting a warrant.

Convertible Loans

What is reasonable for a convertible loan depends very much on the stage at which a company is. For example, a company that has already received significant investment but has not been performing to plan may expect quite punitive terms; a company using a convertible loan to “bridge” to an identifiable future investment may expect a short loan term. Because this manual is geared towards startups, we are not going to address later-stage terms.

While there are no “one size fits all” terms, the following terms are generally reasonable:

  • a discount of 0% to 20% off the future equity round price
  • a term of 18-36 months
  • an interest rate of 5%-10%
  • automatic conversion on a conversion event but, if no conversion event has occurred prior to the maturity date, the investor has the option to convert or be repaid
  • an interest rollup such that the interest converts into shares rather than being paid back if the investor chooses to convert the loan

The understanding of both parties entering into a convertible loan is that, so long as everything goes well, the loan will be converted into shares; the investment goal of a professional investor is not to merely receive loan interest.

Important Note: In relation to Enterprise Ireland’s High Potential Start-Up (HPSU) investment, EI has indicated that, where convertible loan notes are in place, its general policy is to require that there is a minimum remaining term of 3 years on the loan notes.

The NDRC’s Venture Lab programme usually provides financing under a convertible loan.

A small number of pre-seed/seed VCs such as Frontline Ventures and Passion Capital operate a pre-seed investment programme. These VCs will invest up to €200k in founding teams that they consider to be very high quality and who are addressing very big markets, but who are often pre-product and/or pre-revenue. Investment on this basis is also typically by way of a convertible loan.

Equity Investment

An incubator’s terms may require that the company issues equity (shares) in exchange for participation in the programme, or, more usually, for cash payments in one or more “tranches.” The amount to be invested is usually fixed. The percentage of fully-diluted share capital to be issued can depend on both the incubator and the business; there is usually some room for negotiation. Shares issued are normally ordinary shares.

Angel investors tend to invest for equity/shares rather than provide a convertible loan. However, because more incubators and VCs are offering convertible loans or cash in exchange for convertible equity, more angels will be familiar with convertible instruments.

Be aware that, in order for an angel investor to claim EIIS (Employment Incentive Investment Scheme, the successor to BES) relief, the shares to be issued must be ordinary shares carrying no preferential rights. An angel investment in preference shares will not receive such relief. An investment via a convertible loan will not receive relief unless the loan is converted into ordinary shares of the company.


A company takes on angel investment from a number of experienced and familiar angels. Three additional angels join the round because of their personal connections to the initial angels. The company does not talk to these “friends of friends” directly. At the next funding round, 18 months later, one of the angels asks to sell their shares because they needs liquidity (cash). If they cannot sell their shares now, when does the company expect to exit?

The problems here are:

– Regardless of the angel’s personal financial position, wanting to sell shares at such an early stage implies a lack of confidence in the company, which is visible to the new investor
– Anyone who wants to invest in the company and is prepared to buy shares will be paying that angel for their shareholding; the company does not receive additional funds
– The angel could want to sell their shares to someone who might be undesirable, for whatever reason, to the company

As it happened, the angel investor did not have someone lined up to buy their shares. The company had to have the then-tricky conversation with them to reset their expectations in terms of the likely timing of an exit. The average time-to-exit for high potential startups is 8 years from initial investment. This came as a shock to the angel, and it came as a shock to the company that they were not aware of those timelines. While the relationship was rebuilt in the end, it took time, energy, and sensitivity to do so. The company should have given all angel investors general information about the company’s funding, growth, and potential exit plans at the time of the initial investment.