It’s time to raise capital – what costs are involved?

Oliver Woolley

By Oliver Woolley

As your business grows, it is good to fully understand what is involved in a fundraise so that you can be prepared and budget accordingly when the time comes. This quick guide will help you set a budget for your raise.

It is recommended that, to cover upfront costs, you’ll need around £7,000-£29,000. Factoring in success and/or monitoring and due diligence fees for funds, your total spend will be in the range of £20,000 to £60,000 depending on where the funds come from and the total raise amount.

For raises above £500,000 this can be as little as 5-13 per cent of the amount raised. For raises of £250,000 or below the percentage can be as high as 9-24 per cent.

Let’s look at the various costs in turn.

Legal fees

Selling shares in your business requires numerous legal documents. For example, a Term Sheet. This is a summary outlining the material terms of the agreement. You can create this, and your lawyer will use it as a basis for further documentation. Also required are a Shareholders Agreement, Subscription Agreement/Investment Agreement, Disclosure Letter, Articles of Association and Deed of Adherence (used when new investors are joining a pre-existing group).

Additionally, you’ll need a Service Agreement which includes employment contracts with the managers/directors, incorporating non-compete restrictions. Many investors will review employment contracts during their due diligence. It’s not requisite to launch your fundraise, but will be needed.

SME Publications/ SME XPO 2024

We see a lot of pitch decks which make it difficult to understand what the business is and why anyone would want to invest in it

To avoid future problems, this is an area worth spending your budget on. While we always recommend working with a lawyer specialised in early-stage investments, you’ve a choice between platform-based services, like Seedlegals, starting at £1,000 or firms like CMS, which while more expensive starting at £5,000, are a safer choice for businesses beyond the seed stage.

That is a lot of documentation to put together – especially if you’re just starting out. Sometimes smaller deals, under £100,000 will use a Letter of Agreement/Conditions of Investment Letter. These letters may be drawn up with little involvement from a lawyer. The advantage is that this process is quicker and cheaper; the disadvantage is that these documents may not incorporate proper legal protections for the investors. You may also need advice on your company’s Articles and the shareholder’s agreement (if there is one).

Tax advisory fees

Businesses which qualify for the Seed and/or Enterprise Investment Scheme (S/EIS) will want to take advantage of the scheme as it is a major incentive for investors. However, as with all government schemes, S/EIS requires a fair amount of paperwork. It’s complicated and unfortunately easy to make a mistake. If you do apply yourself and make a mistake it might mean your application is rejected or it could mean that down the road your investors find out that they are not getting the tax breaks after all. Due to the complexity, we always advise working with a third-party on your application. Starting costs range from £1,500 – £3,000.

Corporate finance advisory fees

In addition to legal advice, many seek corporate finance help to ensure they are ‘investment ready’.

Investment readiness means you have a clear proposition, i.e. the answer to the question ‘why should I invest in you?’, and all requisite documentation to support your raise. Some Local Enterprise Partnerships (LEPs) or Chambers of Commerce offer subsidized ‘investment readiness’ programmes. The level of fees can be a monthly retainer or anything from £1,000-£10,000.


Marketing costs vary greatly from one raise to another. Many choose to create all their materials in-house, while others splash out on snazzy pitch decks, multi-channel awareness campaigns etc. The right amount depends on for example, your audience, the size of your business, and what kind of investor you’re targeting.

For many, working with an agency to produce a pitch deck is a smart move. We see a lot of pitch decks which make it difficult to understand what the business is and why anyone would want to invest in it. Common mistakes include spending too much time on the wrong topics, jamming a novella onto a single slide and ignoring basic principles of design. If an investor can’t understand what you do, they won’t invest.

Video has been shown to drive engagement and may be worth considering. However, a good video can be costly with £3,000 being a typical starting point.

Registration fees

While many believe they can find all the investors they need using LinkedIn, the reality is that cold-approaching investors isn’t the best way to raise capital.

There are organisations that have networks of registered investors; these networks have a good idea of the type of deals which will interest their community, however they do typically charge fees for access.

Each network is unique; some charge for investment readiness and promotion while others charge a flat fee for access.

Fees can be anything from £200 to £6,000 and depending on the service may mean you don’t need to spend on advisory fees.

Success fees

Success fees are payable as a percentage of funds raised through an intermediary. Typically, between 5-7 per cent, although some will charge much more, of the funds raised. Some brokers may also ask for options.

Due diligence fees

These fees are often charged when working with funds and cover the cost of conducting legal, financial and technical due diligence on your company. This can be anything from £10,000-£25,000 and is typically taken out of the funds they invest. If you pull out of the deal, you may also be liable for these costs as an abort fee.

Once funds are in place

Most investment funds will require you to pay monitoring fees once the funds are in place. These are usually around £6,000 per annum. In some cases, you may be able to increase the amount of finance raised to cover some or all of the costs.

By understanding where money will need to be spent to raise equity capital, and putting together an appropriate budget you’ll be in a good position to attract investors and achieve your goal.

Oliver Woolley is CEO and co-founder of Envestors, a digital investment platform

SME Publications/ SME XPO 2024