The 2023 to 2024 Fundraising Reality
The 2021 vintage of UK venture deals was exceptional by any historical measure: high valuations, compressed due diligence timelines, and generous terms. The market that replaced it in 2023 and into 2024 was not simply a correction to a long-run mean. It was, for many companies, a genuinely difficult operating environment where capital was available but on materially worse terms, and where the length of fundraising processes extended from months to, in some cases, over a year.
Beauhurst's H1 2024 data showed total UK venture investment down significantly from the 2021 peak, with deal counts contracting and median pre-money valuations resetting across most stages. For founders who raised at peak 2021 valuations, a 2024 raise created an unavoidable reckoning: down rounds, flat rounds with enhanced investor protections, or a decision to extend runway and delay raising altogether.
This article is written for founders and CFOs navigating that environment. It covers the runway calculation and the decision of whether to raise now or wait, the structuring options available to protect or defer valuation, the negotiating positions that matter most, how to run a competitive process when genuine competition is limited, and how to manage relationships with existing investors through a difficult raise.
The Runway Calculation and the Decision to Raise
The starting point for any fundraising decision in a difficult market is an honest runway calculation. Runway is the number of months the company can operate before it runs out of cash, based on its current cash balance and its projected monthly net cash burn. This sounds simple but there are four common errors that cause founders to overestimate runway.
The first error is using EBITDA burn rather than cash burn. EBITDA is not cash: it excludes capital expenditure, working capital movements, debt service, and tax payments. A company with £200,000 of monthly EBITDA losses might have £280,000 of monthly cash burn if it is investing in growth and has significant working capital movements. Always calculate runway from actual bank balance movements, not P&L.
The second error is assuming that revenue growth will continue at its current rate throughout the runway period. In a challenging economic environment, revenue can miss plan significantly. A company with six months of runway on the base case has three months of runway if revenue underperforms by 30%. Stress-test the runway with a downside scenario.
The third error is ignoring one-off cash outflows: a large VAT payment, an annual rent review, a system migration, or a redundancy programme that is already approved but not yet executed. These must be included in the runway calculation.
The fourth error, and the most consequential, is starting the fundraising process too late. A realistic fundraising timeline in 2024 is six to nine months from first investor meeting to cash in the bank. If you start when you have six months of runway, you are raising from a position of existential weakness and will accept almost any terms to close the round. The rule of thumb is: start raising when you have at least 12 months of runway remaining.
Protecting Valuation Through Structure
When the market will not support the valuation that existing shareholders need or that founders want, there are structural tools that can bridge the gap. These are not magic solutions: each comes with trade-offs. The CFO's job is to understand those trade-offs clearly and present them honestly to the board.
SAFEs with MFN Clauses
A Simple Agreement for Future Equity (SAFE) defers the valuation question entirely: the investor provides capital now and receives equity at a future priced round, typically at a discount to the price paid by investors in that round (usually 15% to 20%). The Most Favoured Nation (MFN) clause means that if subsequent SAFEs are issued on better terms, the earlier SAFE investor automatically gets the benefit of those better terms. SAFEs are appropriate for bridge financing between priced rounds, particularly where the company is confident that a priced round will follow within 12 to 18 months. The risk is that the valuation cap on the SAFE becomes the de facto anchor for the next round's valuation.
Convertible Notes
Convertible notes are debt instruments that convert into equity at the next priced round, typically at a discount and with a valuation cap. Unlike SAFEs, convertible notes have a maturity date and carry interest (typically 6% to 8% per annum). The interest accrues and converts alongside the principal. Convertibles are more appropriate than SAFEs where investors want the protection of a debt instrument in case the next priced round does not materialise.
Flat Round with Enhanced Governance
Where the company has genuine leverage (strong metrics, strategic importance to the investor, or competitive interest from other funds), it may be possible to close a flat round at the previous valuation by conceding enhanced governance rights rather than reducing the headline price. Enhanced governance might include: an additional board seat, stronger information rights (weekly rather than monthly reporting), consent rights over hiring above a salary threshold, or tighter restrictions on related-party transactions. For founders who care deeply about preserving the headline valuation (for staff morale, for perception among future investors, or for personal reasons), this trade is sometimes worth making.
Structured Preference
In a down round scenario, investors who are pricing the round below the previous valuation will sometimes agree to a higher headline price in exchange for enhanced liquidation preferences: for example, a 1.5x or 2x non-participating preference rather than the standard 1x participating. This allows the company to report a flat or even up round in nominal terms while the investor captures additional downside protection through the preference stack. This structure should be approached with extreme caution by founders: a high-multiple preference significantly reduces proceeds to common shareholders in all but the very highest exit scenarios.
"A 2x non-participating preference might look like a compromise at the time. In practice, it means that on a 3x exit, the investor doubles their money before common shareholders receive anything. Model the preference waterfall at multiple exit scenarios before agreeing to enhanced preferences."
The Negotiating Positions That Matter Most
In a difficult fundraising environment, investors will push for a range of improved terms. Not all of them matter equally. The CFO should rank these clearly so the founder knows which hills are worth defending.
Liquidation preferences matter most. A 1x non-participating preference is standard and should be defended. Participating preferences (where the investor takes their preference and then participates pro-rata in the remaining proceeds alongside common) are materially worse for founders and should be resisted. Enhanced multiples (1.5x, 2x) are negotiable only in extremis.
Anti-dilution provisions matter significantly. Broad-based weighted average anti-dilution is standard and fair. Full ratchet anti-dilution (which resets the investor's conversion price to whatever the new round price is, regardless of how different it is from the original price) is extremely founder-unfavourable and should be avoided. In a down round, broad-based weighted average is the acceptable compromise.
Information rights are relatively low-stakes but can become burdensome. Monthly management accounts, annual audited financials, and board observer rights are standard. Weekly reporting requirements or demands for unrestricted data room access outside of formal reporting cycles should be resisted on operational grounds.
Pro-rata rights (the right of existing investors to invest in future rounds to maintain their ownership percentage) are standard and reasonable. Super pro-rata rights (the right to invest above their current ownership percentage) give the investor a veto power over the next round's terms that is inappropriate for minority investors.
Running a Competitive Process Without Real Competition
A competitive fundraising process requires creating the perception that multiple investors are seriously interested, even when genuine competition is limited. This is not deception: it is process management. The goal is to prevent any single investor from believing they can set terms unilaterally or that time is entirely on their side.
The practical tools are: running a structured process with defined timelines (first meeting to management presentation within two weeks, management presentation to term sheet within four weeks, term sheet to close within six weeks), approaching multiple funds simultaneously rather than sequentially, being transparent about the process timeline without disclosing specific names, and using a deadline that is real (not artificial) to accelerate decision-making.
The most common mistake is approaching investors sequentially out of a misguided sense of loyalty or because the founder wants to avoid difficult parallel conversations. Sequential processes are long, give each investor maximum information and time, and do not create competitive urgency. Run a simultaneous process even when you prefer one investor over others.
Managing Existing Investor Relationships
Existing investors in a difficult raise have interests that are not perfectly aligned with yours. A lead investor from a previous round may have marked their position at the higher valuation: a down round requires them to mark down their fund's reported NAV, which affects their own LP relationships and their ability to raise a subsequent fund. This creates an incentive for existing investors to delay or block a new round that would crystallise a down-round mark, even if that round is in the long-term interest of the company.
The CFO's role is to ensure that the board has a clear-eyed view of where existing investors' interests align with the company's and where they diverge. In a genuine distress situation, existing investors should be given the opportunity to lead the next round with a first look. If they decline, that information is valuable: it tells you both what they think of the company's prospects and what terms might be needed to bring in new capital.
Maintaining relationships with existing investors who are not leading the next round requires regular, transparent communication about the company's trajectory. Investors who feel uninformed or excluded become difficult to manage at the critical point when consents are required to close the new round.
Key Takeaways
- Calculate runway from actual cash movements, not EBITDA. Include a downside scenario and all known one-off cash outflows. Start fundraising with at least 12 months of runway remaining.
- SAFEs and convertibles defer rather than solve the valuation problem. Use them as bridge instruments when a priced round is genuinely imminent, not as a mechanism to avoid the valuation conversation indefinitely.
- Model the preference waterfall at multiple exit multiples before agreeing to enhanced preferences. A 2x non-participating preference is a significant economic concession even if the headline valuation looks acceptable.
- The terms worth defending most strongly are: 1x non-participating preference and broad-based weighted average anti-dilution. These are the terms that matter most in a down-round or moderate-exit scenario.
- Run a simultaneous process across multiple investors, even if you have a preferred lead. Sequential processes are longer and give investors more negotiating power.
- Existing investor interests diverge from company interests in a down round scenario. Be clear-eyed about where alignment ends, give them a first look, and move forward if they decline.
- Investor relationship maintenance through the fundraising process requires proactive communication, not radio silence. Investors who feel uninformed create problems at the close when consents are required.
