As the third-largest venture capital market in the world, the UK offers a wealth of opportunities for investors and an exciting landscape for SMEs to secure funding to drive growth and realise ambitious founder visions.
But when too much focus is placed on the headline valuation, and founders fail to approach the negotiation table with a detailed and holistic mindset, early missteps can have lasting consequences for future funding rounds, board control, and ultimately, any exit. Sam Brown, a specialist venture & growth capital lawyer at Ashfords, has been advising clients through VC negotiations for over 12 years. Here, he shares the most common mistakes made by first-time founders – and how to avoid them.
Mistake 1: Valuation tunnel vision
It’s natural for business owners to chase the highest valuation, equating a big number with success. But without careful consideration, what you give away in return can outweigh the benefit.
The higher the valuation, the tougher the trade-offs. Aggressive liquidation preferences or extensive investor consents can quickly undermine the value of a “high” valuation when it matters most.
Looking beyond the headline number and thinking holistically about dilution, investor rights, and future expectations will help secure an offer that reflects true value, not just on paper, but in practice.
Mistake 2: Ignoring economic levers
Glossing over terms that seem relevant only later, such as on exit or in a down round, can lead to founders receiving far less than they anticipated.
Every commercial term, even if dormant initially, has downstream consequences. When considered through the lens of both today’s operations and future growth, it becomes easier to identify what’s workable – and what’s not.
Understanding and negotiating these terms up front will limit any harmful future surprises. For example, participating preferences allow investors to take their money back first on an exit, and then share in the remaining proceeds as if they held ordinary
shares. A “double dip” that can significantly reduce what’s left for founders. Or, full ratchet anti-dilution, which entitles investors to a repricing of their shares if the company raises at a lower valuation in the future, giving them more equity for the same original investment.
These mechanisms can leave founders with significantly reduced equity, minimal proceeds on exit, and less say in future funding rounds or strategic decisions.
To understand the real-world impact of these terms, founders should model their cap table and run scenario analysis. Push for non-participating preferences and capped rights where possible. For example, a 1x non-participating preference with a cap can offer investors downside protection without disproportionate upside – helping maintain alignment with founders and creating a cleaner platform for future raises.
Mistake 3: Giving up control too easily
Founders often assume that owning the majority of shares means retaining control. But in venture deals, the governance framework tells a different story.
Most investors will seek board representation, veto rights, and reserved matters over key decisions. Without clear boundaries, these rights can dilute a founder’s ability to lead or slow down the business at critical moments.
Understanding board composition – and how those dynamics could play out over time – is essential. Day-to-day decision-making authority, founder leaver provisions, and investor consents should all be assessed carefully to determine whether the deal supports the company’s long-term strategy.
Mistake 4: Thinking short-term
Securing your first investment is a moment to pause and celebrate – but it is not the finish line.
Many founders become so focused on closing the round that they fail to consider how today’s terms could restrict future flexibility. Over-generous rights or overly complex share structures can create friction in later raises or put off future investors entirely.
Instead, you should approach fundraising with scalability in mind. Consider whether the deal you’re signing today will still make sense in two rounds’ time.
A forward-looking mindset gives you the freedom to evolve the business, attract the right investors in the future, and keep your strategic options open.
Mistake 5: Not seeking the right advice
Negotiating with investors without specialist advice is a common – and costly – problem. So too is relying on generalist advisers who are unfamiliar with the dynamics and mechanics of venture funding.
With any investment deal, what you don’t know can hurt you. Key terms might appear harmless at first glance, but have significant implications in practice, especially when it comes to valuation mechanics, control rights, or exit provisions
Even small oversights or assumptions can shift the balance of value or control dramatically. Experienced legal and financial advisers who know both sides of the table can benchmark investor asks, flag risks early, and help shape a deal that supports your long-term goals.
Final takeaway:
Don’t be dazzled by the number on the table.
Successful VC negotiations require more than a strong pitch – they demand detailed scrutiny, smart structuring, and the right team around you.
Get this right, and you won’t just close a funding round – you’ll lay the foundations for sustainable growth, a healthy investor relationship, and a better outcome when the time comes to exit.
For further legal insights on fuelling future growth and raising capital, please see Ashfords quick and easy guides for founders.
