We Placed Close to 50 Entrepreneurs, Investors and Lawyers Into One Room. Here Are Some of Their Thoughts And Questions On Early Stage Funding

By Alex, Updated: 2023-01-18 (published on 2016-03-29)

If you are in the process of fundraising for your startup, it is likely you will have asked yourself the following questions:

But is paying USD 500 an hour (Chambers and Partners) the only way to get these questions addressed by experts?

In Zegal’s last Legal Startup Academy, we sat an entrepreneur and investor down with two legal practitioners. Here are your questions on early stage funding, answered:

SH panel

1. How have you or your clients raised funds for startups you have been involved in?

Tom: I have raised seed rounds from angel investors as Founder of Bakipa and Grow360. They were experienced investors (rather than friends and family) for the most part. Not only were these investors interested in the field we were operating in, they were also of great help towards connecting us to other investors. The startups I work with at Leo Tech now are looking to raise larger rounds for Series A. They speak with venture capitalists (VCs) who are focused on businesses with better traction.

Sarah: Where founders don’t have the resources to bootstrap or get investment from family and friends, crowdfunding is growing as an alternative. The Monetary Authority of Singapore (MAS) recently granted a Capital Markets Services Licence to a crowdfunding platform for the first time. Crowdfunding or pre-market sales sites can also be a useful way to test market interest in your product prior to launch. Be very careful, however, that you are using a reliable platform that is working in line with regulations.

My startup clients in New Zealand were developing high-tech products in the healthcare sector that required lengthy research and development time. They looked to VC funds that had a mixture of government and private backing, where the investors were prepared for a long lead time before they would see a return on their investment.

Elaine: Agreed. The usual avenues are: Family and friends, venture capitalists and angel investors.

See also:

Infographic: A guide to startup funding

2. Is documentation really that important if I am raising money from family and friends?

Tom: Definitely. Of course, everyone joins a business as a founder or investor believing it will all work out – but you must be prepared for the worst-case scenario. Conflicts among business partners can be made complicated by pre-existing family and friendship ties. Legal documentation provides a framework to manage any potential disputes in the best way possible, thereby reducing their impact on personal relationships.  

Sarah: Documentation is very important. This does not have to be complex; but should set out the expectations of both parties at bare minimum. For example, if your brother invests in your business, will he then have a say in how the business runs day-to-day? Do all parties understand how the investment is structured – is it a loan, purchase of equity, or combination?

Elaine: Start with your long-term business plan in mind. Having the right documentation in place from the beginning lays out the foundation for fundraising and other business activities in future.

3. What should a startup look at when picking the right VC?

Tom: Find out if the VC has a track record of investing in similar businesses. With a bit of digging, it is usually quite easy to identify other startups that a VC has in its portfolio. This helps you understand their interests as well as the expertise they bring to the table. Obviously, if you find out there is a direct competitor also in their portfolio, you may want to rule them out as potential investors.

Also think long-term: Can they participate in future funding rounds or, at least, provide access to a wider investor network? This means you can spend less time looking for investors, which will make your life as a founder so much easier!

Elaine: I agree with Tom – choose investors based on their interests, expertise and network. Research into how their portfolio companies have grown or benefitted. I would also add that you should look into the firm’s exit strategy and time horizon. Use this to eliminate any firm whose exit strategy does not fit well with your plans.

Sarah: Conduct a due diligence on potential investors, just as they will on you. What value do they add to the businesses they invest in? What level of day-to-day involvement or board representation do they wish to have, and will they be bringing their own connections into your management team? Will you be able to work well with these people?

4. Is getting on-board with an accelerator/incubator the right route for every startup?

Tom: No, they are not for every startup. Accelerators and incubators can be a great way to test the assumptions embedded in a very early stage startup, with the help of mentors (and perhaps cash investment). An inexperienced founding team will also stand to benefit greatly from a good accelerator.

However, if your startup has already reached product/market fit and is demonstrating significant traction, an accelerator is unlikely the right place for you.

Sarah: A lot of factors come into play when considering an accelerator or incubator. As your business continues to grow, it will stand to benefit from the brand recognition and network-effect from joining a highly-regarded accelerator.

In my opinion, an incubator programme may be ideal for a more complex product or service that requires a long R&D process.

On the other hand, if you are starting in an industry where there is little barrier to entry for new competition, bear in mind that some accelerator programmes require you participate in a large number of mandatory events – these take precious time away from you from focusing on your product.

5. What resources and tools are available for startups and investors on the topic of early stage funding?

Tom: There are a number of programmes available for early stage startups to test ideas. The JFDI Discover course is one of them. AngelList is an excellent resource for researching anything from valuations and startups with similar ideas, through to finding employees. From a legal perspective, read Brad Feld’s book Venture Deals for an overview of documentation and processes that are part of raising funds. The book aims to teach you how to “be smarter than your lawyer and venture capitalist”. You can also subscribe to Brad’s blog here.

Sarah: Startup- and entrepreneur-focused events are aplenty in Singapore. You will be surprised at how willing many founders and entrepreneurs are when it comes to sharing their expertise. Not only will you stand to learn a lot by attending one, you will also grow your network significantly. Another simple step is to follow major publications such as Tech in Asia and e27 to keep up-to-date with the angel investors/VCs/accelerators and incubators who are entering the Singapore market; and, on the investor front, monitor the up and coming startups who are looking for investment. There are, of course, also resources such as Zegal(!) who produce freely available content to guide you through the legal considerations for each stage of your business.

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Elaine: Startups in Singapore should take full advantage of government support that is available to them. You can learn more about the eligibility criteria, requirements and considerations at Infocomm Investments and SPRING Singapore (ACE Startups Grant).

6. When is the right time to start looking out for funding (and to start giving away equity)?

Tom: It is difficult to provide an absolute answer to this. My advice is for you to test as many assumptions as possible before beginning to raise funds. You can begin by selling an early version of the product and through this gather feedback from as many potential customers as possible; or evaluate other startups who are trying to solve a similar problem. Beyond this, you will most likely need a minimum viable product and some traction in order to raise from angel investors.

Having a solid core team in place will also help boost investor confidence. A track record of having worked together for considerable time is a huge plus – too many startups fail as a result of founders falling out.

Minimise the impact of founder conflict with a Shareholders’ Agreement:

Learn more

Elaine: You are ready to start fundraising when you have a pragmatic business plan that poises your startup to take off on an accelerated growth path. Be prepared to give up a part of your equity in exchange for a high valuation – this prevents a huge dilution of your own stake. This possible loss of control/decision-making power calls for a certain level of mental preparedness before you begin your search for funding.

7. What are the key points of negotiation for a ‘win-win’ between investor and founders?

Tom: Many founders get overly-focused on valuation at early stages. This can result in negative repercussions in some cases. An experienced and reputable investor will generally be able to provide good insight into what a fair valuation is. It is also important for you to understand all terminology in investment documents to ensure future scenarios are aligned with your expectations (e.g. liquidation preferences).

You should also know what your walk-away point is i.e. how much equity are you willing to give away in the investment round? Have this clear in your mind before you engage in serious talks. Finally, if you are lucky enough to be in a position to do so, it is always good to talk to as many investors as practical in order to get a better sense of how your business is perceived. In an ideal scenario, you’d want to have more than one offer of investment.   

Sarah: There is a saying that a “win-win” happens when both parties are equally unhappy: Accept that consensus will take time and don’t allow yourself to be railroaded. Negotiate in a mature manner so the investor will respect you as a business partner going forward.

For an investor, often taking advantage and requiring unconscionable terms can backfire. A founder may begin to resent the situation and the development of their idea can falter, leaving you with favourable terms but no value in the business to see any benefit from those terms.

Elaine: The bottom-line is for both investors and founders to be absolutely clear on what they want.

8. Singapore is an expensive city to live in. How does a Founder justify his request for a high salary?

Tom: Bluntly speaking, if you expect a high salary, perhaps a startup isn’t the right place for you. You should consider yourself lucky if you achieve break-even in the early years of a startup. To me, this is more about personal runway and will undoubtedly depend on individual cost of living.

In cases where it is not possible to get a salary that fully covers your cost of living, founders need to calculate how much personal runway they have until it is no longer viable. This runway should allow time for the business to get to a point where it can sustain a higher salary or for other options to be worked out.

As much as possible, any additional funds should be re-invested toward product or business development.

Sarah: Investors will usually want (and should) incentivise founders to stay on to build the business, especially in a startup’s early stages. It is important for both parties to find the right balance between what is essential to live in a city like Singapore; yet at the same time is sensible for the business. The best way for you to achieve this is to back your salary requests by well-researched numbers that address the cost of living in Singapore.

Read more:

eBook: Early Stage Funding

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The above is the transcript of a panel discussion that took place at one of Zegal’s Legal Startup Academy sessions.

About the Zegal Legal Startup Academy

Legal Startup Academy

The Zegal Legal Startup Academy is a 6-module series aimed at empowering business owners in Singapore with essential legal knowledge for every stage of the business. View our full Academy listing here.

To be notified of when our next session runs, sign up for the Zegal newsletter here or subscribe to our event page on Facebook.

About the Panelists

Tom Duncan

Tom Duncan has recently joined Leo Tech as Head of Investment Operations. Leo Tech is a technology company based in Singapore that provides technology consulting and development services for corporates and has an investments team focused on startups. Tom is an active early stage investor and has co-founded two startups – Bakipa and Grow360. Prior to this Tom spent more than a decade in Investment Banking, including most recently at Barclays in Singapore focused on capital markets. He holds an Executive MBA from INSEAD.

Sarah Hales

Sarah Hales is Sales Manager at Zegal in Singapore. Sarah started her career as a Commercial Lawyer in New Zealand, before moving to Australia to manage a team of Estate Planning lawyers at NAB. She now enjoys working with a wide range of startups and SMEs, allowing them to access legal documents cost-effectively and increase efficiency in how they manage legal matters within their business.

Elaine Beh

Elaine Beh is a Partner at Virtus Law LLP, part of the Stephenson Harwood (Singapore) Alliance. She has substantial experience advising small and medium enterprises in their corporate and fundraising transactions. Clients value Elaine’s “hands-on” approach to matters.

About Zegal


Zegal’s technology helps companies in Singapore and Hong Kong build legal documents they need at every stage of the business. Its interactive platform allows users to create, customise and store legal documents in the cloud for sharing and signing online. Our free trial lets you to create up to two legal documents tailored to your business – start by registering here.

About Stephenson Harwood (Singapore) Alliance

Stephenson Harwood

The Stephenson Harwood (Singapore) Alliance offers clients an integrated service in multi-jurisdictional matters involving permitted areas of Singapore law and is widely recognised as being a top-tier firm in asset finance, shipping and international trade, corporate, covering the Southeast Asia from its Singapore hub.

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Tags: Interview | raising capital

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