Analysis

December 15, 2023

The hidden cost of fundraising: Over a third of European startups pay fees of some kind to their investors to get a deal done

And 51% of European startups need to close their next funding round within six months...


Amy Lewin

3 min read

Credit: Alexandar Todov, Unsplash

Early-stage European founders are heading into 2024 with one thing at the top of their to-do list: fundraising. 

A recent Sifted survey of 107 European startups found that 51% need to close their next funding round within the next six months. 

65% of respondents said they’re already out knocking on the doors of investors. 

A number of founders have even contributed their own money to a funding round, or plan to, in response to pressures in the market. 

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Fees to investors

34% of respondents said they paid fees of some kind, connected to the funding round, to their investors. 

It is a common, but perhaps little talked about, practice for startups to pay the legal fees of incoming investors. For our respondents, that ranged from £3k to £200k.

But other costs covered by startups include EIS and SEIS fees (the UK schemes which provide tax incentives for early-stage investors), due diligence, investment and shareholder agreements, as well as a fee to attend an investor’s accelerator programme, SAFE issuance and crowdfunding platform fees. Those fees ranged from 1% to 12.5% of the money invested. 

One respondent said they were even asked to pay a management fee that covers their investor’s attendance on the board. 

Time taken to raise

Just eight respondents said it had taken them over a year to raise their last round. Most were on the road for a lot less time: 39% raised in under three months; 35% raised in under six months. 

46% had raised less than six months ago. 26% had raised between six to twelve months ago, while just 28% had raised more than a year ago. 

Two thirds of respondents had both angels and VCs as investors already. Just 10% had raised from public funds.

Most (72%) raised from new investors, while just over a quarter (28%) raised their last round solely from existing investors. 

A majority (57%) said their valuation had gone up at their last round — although it’s worth noting that 75% of respondents said their startup is at the pre-seed/seed stage, where valuations have in general held steady in 2023. 

Founders getting involved

21% of respondents said their startup’s founders participated in the last round of funding. 

Some said they did so because their startup is very early-stage, “therefore it was a must to have the founders front and centre of the funding round”, commented one. 

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Others said they did so in order to “build conviction” and “show even further commitment”. 

One startup’s founders matched funding contributed by investors. 

Pressure to raise again

Just 3% of respondents said their company wouldn’t need to close its next funding round for two more years. 21% need to close a new round within three months; 51% need to close a new round within six months.

65% of respondents are currently fundraising. 

Most (94%) plan to raise from new and existing investors. Just 6% plan to raise solely from existing investors. 

VCs are the top target for fundraising founders, followed by angel investors. Corporates are on the hit list for just a third of startups. 

Amy Lewin

Amy Lewin is Sifted’s editor and host of Startup Europe — The Sifted Podcast , and writes Up Round, a weekly newsletter on VC. Follow her on X and LinkedIn