Should you set up your share scheme before a funding round?

If you’re preparing to raise investment, you’re probably prioritising your pitch deck, speaking to investors, and (we would hope) getting your cap table and finances in order.

But there's another decision that's worth considering early on: when should you introduce a share scheme?

It’s common for founders to wait until after they’ve raised investment, assuming that they’d have more certainty around their hiring and growth plans.

In reality, setting up a share scheme before a funding round can often put your business, and the proposition to recipients, in a stronger position.

That’s because fundraising and employee ownership aren’t two separate decisions - both affect valuation, cap tables, and long-term ownership strategy.

Why timing matters

A funding round can significantly increase the value of your business. If you’re planning to launch an EMI scheme or issue growth shares, timing that decision before an increase in valuation could make a meaningful difference to the value employees receive.

For EMI, the exercise price is often set at or above the agreed AMV, particularly if you're looking to preserve the tax advantages, at the time the shares are issued.

If your company is still in its early stages, that AMV is often relatively low. So if your business grows significantly following a funding round, employees may be able to exercise their options at the original, lower exercise price and benefit from the company's future growth.

For example, if your company is valued at £200,000 when you grant EMI, the exercise price may be agreed based on that valuation. Twelve months later, you complete a funding round and the business is now valued at £5 million.

Employees who were granted EMI options at the first valuation can now benefit from more of the value created as the business grows.

Similarly, growth shares are generally most effective when issued while the company’s valuation is still relatively low, because the hurdle over which recipients benefit from is lower.

Not only is this good for employees, but it can also be a great tool for leverage when negotiating salary packages. Greater upside potential creates a stronger proposition for prospective employees.

Investors look for strong teams

Investors aren’t just assessing your product and market opportunity. Whilst those are key factors, they will also assess how well your business is run.

A messy data room with missing documents, outdated information or unclear ownership structures can raise concerns. A clean, organised data room shows that your business is transparent and investor-ready.

Getting it right early can mean that your best foot is put forward, and you’ll be maximising your chances of securing investment.

Setting up an option pool

As an extension of showing you’ve thought about your hiring strategy, investors often also like to see that you’ve considered how this affects your cap table.

In many funding rounds, investors will ask for an employee option pool to be created before they invest. If this hasn't already been considered, it can become another point of negotiation during the deal.

Rather than negotiating an option pool during the investment process, having one in place already helps to demonstrate that you’ve thought about the businesses scalability.

This also protects them from unexpected dilution, and enhances cap table clarity, which are all wins from an investor’s perspective.

Treat fundraising and employee ownership as one strategy

Your share scheme and investment round work best as part of a holistic growth strategy, not two separate projects.

Ask yourself:

• Will your valuation change significantly after this round?
• Are you planning to hire employees soon?
• Do you know how much equity you’ll need for future hires?
• Have you modelled how different scenarios affect your cap table?

Answering these questions early can help you avoid unnecessary restructuring and make conversations with investors much smoother.

The earlier you plan, the more flexibility you have

If you’re expecting your next funding round to have a significant impact on your company’s valuation, it’s worth considering employee ownership before those conversations start.

By thinking about fundraising and equity together, you’ll be better placed to understand your long-term plan, how it connects, and avoid making important ownership decisions under pressure.

At Vestd, we help founders navigate both sides of the equation - from setting up tax-efficient share schemes to preparing for investment with cap table management, funding tools and SEIS/EIS support.

If you're planning to raise investment or reward your team with equity, book a consultation to discuss your plans and build a strategy that works for your business.