Raising a Series A in 2026: What US Investors Actually Want | Daniel Glazer | Wilson Sonsini

0:11Matt Oxley:Hi, everyone. David Rose here. Welcome to the next episode of the Scaling Stateside podcast. Along with my co-founder and co-host, Matt Oxley, we are on a mission to help UK and EU founders successfully enter the US market. And of course, a big part of that is venture fundraising. So We're also trying to talk about venture fundraising best practices and help them understand the overall market. So as part of that, we have a very special guest with us and good friend, Dan Glazer from Wilson Sincini. Dan, please introduce yourself for those of people who don't yet know you, which is probably a pretty small number.

0:45Matt Oxley:And tell us where in the world you are today. Sure, sure thing. David, Matt, great to see you. And thanks for having me on today. So my name is Dan Glazer. I head up the London office and the U.S. expansion team at the Silicon Valley headquartered law firm, Wilson Sonsini. I am usually based in London, but actually traveling today on business in the great city of Manchester. So looking forward to speaking with you today. Great. Well, I think one of the things that's really important about, you know, your relationship personally with startups and also Wilson Sonsini at a high level is you collect a lot of data.

1:21Matt Oxley:You close a lot of deals with the venture capital community, specifically in the US. And as part of that, Wilson Sassini collates this data and publishes an entrepreneur's report, kind of a macro look at the venture fundraising trends that I always thought as a founder, I really wanted to be aware of. So I can always help position my company and my pitch just a little bit better to kind of fit the market with the markets looking at. So just at a high level, Dan, talk us, walk us through. And again, there's probably a bunch of ranges. Let's think about a round kind of range for today's discussion.

1:51Matt Oxley:And talk us through kind of the reporting from the WSGR Entrepreneurs Report. Because this is backward looking to 2025, but it's probably going to shape the trend for 2026. Give us a high level as far as what you're seeing for valuations and fundraising amounts and those sort of things. Yeah. I mean, generally speaking, I think that this is certainly what we're seeing with U.S. investors where they're investing in the United States or overseas into the U.K. and Europe. I mean, it's overall a very robust time. I mean, we're not quite in 2020 or 2021, but the sort of slight down cycles that we saw, let's say, in 22, 23, 24 were past that.

2:31And, yeah, part of that is AI, but not all of it. And I think generally speaking, if you think of venture capital and especially, let's say, Series A as being maybe a series of peaks and valleys that tend to level off and look a little bit smoother in the aggregate, we're on, if not a current peak, certainly near a peak. it's all in all, especially if you're an AI company, a pretty good time to be raising capital in terms of the availability of capital and the size of rounds. I mean, just look at the reporting on a day-to-day basis and the size of rounds that we're seeing certainly reminds me a bit of the sort of thing that we saw in the early 2020s.

3:20Matt Oxley:So Dan, looking at the macro trend reports, I think a lot of founders in the U.S. are pretty comfortable with the market being dilution at 20 to 30 percent. I think a lot of times founders we talk to in Europe might come with a different number. And I'm always pitching like, hey, sell people what they want to buy. Don't get cute and come with an unusual number. What do you see as kind of the trend overall dilution at the A-round level? What should a founder expect? Yeah. So one of the things, and this is going to be a theme that we probably come back to between the U.S. on the one hand and the U.K.

3:53and Europe on the other, is that there's a little bit less, let's say, homogeneity in the U.K. and Europe, especially at the early stages of fundraising than there is in the United States. Now, it's interesting. You might think that I say that. I'm like, well, there's, you know, because there's so many different funds in the U.S. in terms of stage, in terms of sector, in terms of investment thesis. But there actually is relative standardization at the early stage in terms of what they are looking for, right, that they that they are looking for fairly fast moving businesses that can reach venture scale outcomes.

4:31and generally investing according to so-called NVCA, National Venture Capital Association norms. And within those parameters, there actually is a reasonable amount of standardization. And as you said, that kind of 20 % give or take dilution is pretty common. In the UK and Europe, there's a whole range of different investment styles. certainly at the early stage at C and Series A, that could be looked at as venture capital, right? Like on the one hand, and I'm just going to think of it as maybe a bit of a risk spectrum, right? You've got, let's say, American funds with offices in the UK and Europe who are taking the same approach to things as they would in the United States.

5:16Then you've got funds that are UK and European based, but may take an American style approach to risk and things like dilution and terms and all of that. And then you've got other funds that might be driven by, let's say, tax dynamics, right? Like in the UK, you've got things like BCT and EIS and SEIS. And they may be looking at the world both from, hey, can this company give us a venture scale return, but also So what are the tax implications involved? Right. And that adds maybe another another angle to it. And then you've got still other funds that might be taking a little bit more of a private equity style approach.

5:55But they'll be they'll be dropping down and doing venture stage investments. Right. And, you know, you've got one end of the spectrum that might be looking at the world as well. OK, for every 10 investments, seven are going to fail, two are going to wash their face and one's going to return the funder more. And we're going to bet pretty aggressively. Whereas on the other end of the spectrum, more private equity style, there may be more of a focus on minimizing downside risk, right? That may be limiting massive upside potential, but that may be fine. That's just a different investment style that they're bringing to the table.

6:29And the reason I bring that up is because that may impact how the company and the investor ends up thinking about dilution, right? Like if you're taking more of a downside risk minimization approach, you might end up taking, let's say, a larger portion of the company, right? Then you might if you were taking much more of a high risk approach. And what might be appropriate, more of a private equity style venture stage transaction when it comes to dilution is not necessarily going to be what's appropriate, let's say, for a classic Silicon Valley shoot for the moon kind of round. And neither side is right or wrong.

7:11But what I do think gets maybe glossed over a bit in the UK and Europe is that what is referred to as venture capital in the UK and Europe, especially at the early stage, is covering over a much broader range of investment styles and approaches to thinking about risk than in the United States, which is a little bit more homogenous. That's great. And just a further question on deal structure and terms, because one of the things that we're obviously trying to do in scaling stateside is, you know, educate and inform people as they're going through the process. And I certainly, when I was raising money in the US, it was foreign to me.

7:53So one of the things I just wanted to pick up on was founder revesting and the requirements that potentially are there from a Series A stage. And when should a UK EU founder push back on this versus when is it accepted? How typical is it? Because this is something that came up in my fundraising. So, again, it's about educating and passing on that knowledge to others. So, yeah, what would you say about that? Yeah. I mean, even in U.S. term sheets, right, it's actually pretty common at the Series A stage to ensure that the founders remain incentivized to stay at the company and keep building. So, you know, so seeing revesting requirements even in U.S.

8:40term sheets at Series A stage, it's not particularly unusual. Now, and depending on the leverage that the founders may have, you want to consider whether or not, you know, vesting starts immediately, so-called sort of credit for time serve rather than, you know, a one-year cliff. But the concept remains sound. And then you might see full vesting typically over, let's say, three or four years. One of the big differences, though, that you might see in the U.S. versus the U.K. and Europe is that it's a little bit less common in the U.S. to have sort of, you know, somewhat to have so-called good lever, bad lever provisions that may make it easier to take away equity.

9:22In the U.S., it's sort of assumed that everybody is going to be a so-called good lever, that they'll be able to keep what's vested unless there's like fraud or willful misconduct. Whereas in the U.K. and Europe, there might be a broader range of outcomes that could lead to maybe losing some equity. And so I think the way I would summarize it is that it's not necessarily particularly uncommon in the U.S. at Series A to have revesting. But the consequences, let's say, are less severe than in sort of the good lever, bad lever environment of the U.K. and to some extent Europe as well.

10:06Matt Oxley:Dan, on that same topic, and I always think about these as kind of as a founder, like investor or a founder unfriendly terms. I think the revesting I'll probably put in that category. And the others that I always think about, and they kind of come and go in trends for whatever reason. What about like, what are you seeing from a liquidation preference, ratchet provisions, those kind of things I would call founder unfriendly terms? Where is that in the arc of coming and going at the current stage? Yeah. So we are currently in an environment where it's at one time non-participating liquidation preferences is pretty common.

10:44In fact, it's pretty rare to see anything but that outside of down routes. right and some of the other stuff that you've mentioned as well you know ratchets pay to play things like that we're not really seeing that in any meaningful way certainly in u.s term term term sheets other than maybe you know somewhat more aggressive down rounds but you know we're we're in an environment right we're in an environment right now where we are more generally on an up cycle right like if you if you go back to say you know the aftermath let's say of 2020 20 and 2021, you look at 22 and 23, and I think you saw a little bit more of that.

11:23When valuations were particularly high relative to historical norms in 20 and 21, it went back the other direction in 22 and 23, and you saw more of the types of provisions that you're talking about. But now, in what is, I would say, at worst, kind of a market that feels historically normal and if anything is probably a little bit better than normal in terms of being friendly to large rounds and the like, we're not really seeing aggressive provisions like that outside of down rounds. And those down rounds tend to be very company specific issues as opposed to anything that's broader in the ecosystem.

12:07I think, again, maybe some of the tougher times in 22 and 2023, you saw you can make more generalizations about terms like that across the environment, across the ecosystem. I don't think you can really say that currently.

12:20Matt Oxley:Yeah, it's great to hear. I like that trend. One thing, I had a call with a UK founder this morning and you'll be surprised. He was asking me about this. He needs to do a Delaware flip. So let's talk about that for just a second. So what is the expectation of the A round? If you're raising from a US investor, what should the founders be thinking about? Are they going to have to do a Delaware flip and create a US top co? Is that a requirement of closing an A round? or what's the current status of that topic? Because I think there's a lot of missed expectations or information about that. So let's set us straight here.

12:48Sure. So let's step back for a second and make sure that we're all talking about the same thing for our audience, right? So what is the Delaware flip, right? And the Delaware flip reflects the fact that in the United States, at least historically, American VCs got most comfortable investing into Delaware corporations for a range of reasons, not the least of which is because Delaware has got tried and tested corporate governance laws, its own dedicated corporate governance courts that VCs in the U.S. for generations know exactly where they stand, you know, from a rights and obligations standpoint, from a corporate governance standpoint when it comes to Delaware corporate law.

13:27And, you know, rightly or wrongly, there is a bit of a perception that if a U.S. VC is being asked to invest in a company that is not a Delaware corporation, right, that that could be perceived to introduce some friction in the process, right? In other words, at the extreme, you could have a VC look at it and say, look, I feel like I'm taking corporate governance risk here without and I don't necessarily see the upside of taking the corporate governance risk. That's what I'm explaining is the mindset typically of investors, why in the U.S. they might prefer the Delaware Corporation as the parent company.

14:03Because, of course, just to go to that parent company point, they're generally not going to invest in a subsidiary. So the money goes into the parent company. And so when we talk about the Delaware flip, the question is, what is the company's what is the business's parent company? And so when a US VC says, I need you to be a Delaware company in order to invest, what they're saying is that we need you to have a Delaware parent over your current UK or other European company. Now, the later stage that the company is, at least what we're seeing in the UK and Europe, is that the less likely it is that a Delaware flip will be required.

14:40So at pre-seed or seed, if you're raising a round from a US investor, and let me just be clear about something. When I talk about US investors in this context, I am not referring to the US funds with offices in the UK or Europe. I think if you talk to some of them, they'll give you somewhat of a different perspective on the Delaware Flip because they've got offices in the UK and Europe. And to some extent, you know, they've gotten, whether to a greater or lesser extent, they've gotten more comfortable with non-US structures. But from the perspective of the American funds in the United States, if they're leading rounds into UK or European companies at seed or pre-seed, it's not 100%, but it's more likely than not that if they are willing to invest in the business, and in other words, the business being the operational and commercial profile, if they're willing to invest in the business, that they may insist on a Delaware corporate structure.

15:41that they may insist on a so-called Delaware flip to put the Delaware company over the UK or European limited company as a condition of the raise. But the later stage that you get, the less likely it is that that flip will be required. So in the UK, for example, when we see US-based VCs leading Series A rounds, it tends to be a minority of rounds. In other words, more often than not, What we've been seeing for a few years now is that if the US VC is willing to lead a raise around into a UK-based Series A stage company, that they'll usually do it into the UK limited company more often than not.

16:20And then when you get to Series B or later, it's very uncommon in our experience for a Series B or later UK limited company to have to flip into Delaware to raise a US-led round. Not completely unheard of, but very uncommon in terms of what market norms are. And I think that that just reflects at the later stage the company gets, the more that the US VC is willing to deal with any actual or perceived friction associated with investing into a non-Delaware and especially a UK limited company. Because there's no actual legal reason for the most part that a US VC can't invest into a, let's say, UK parent company.

17:01Maybe the one exception is that there are some funds that in their LP documents, there might be a restriction saying that the fund is not permitted. to invest outside of the United States. But that's a contractual restriction. That's not sort of any sort of statutory or other legal restriction on investing out of the US. And the later stage that the companies get, the more that the VCs are willing to just take the company as it is from a corporate governance standpoint. And also because there's just, the company's less fungible at that stage. There's only so many great Series B and later opportunities.

17:31And if it creates friction from the company's standpoint that the VC is requiring a Delaware flip, Often those series B and later companies have other options.

17:39Matt Oxley:How often do you see in the term sheet implicitly or implied that a founder will be required to move to the U.S. when they're raising from a U.S. fund? What is the current situation on that topic? Yeah, and that's a different point than the Delaware flip. And that really gets to the heart of the question of whether a U.S. VC investor needs the business to be in America versus whether they need the company to be in America. What I mean by that is the business is the operational and commercial profile. In other words, where are the employees? Where is the management team sit? What does the traction look like in the United States?

18:23Where are their offices? Where is their HQ, like actual physical HQ? That's what I mean by the business versus the corporate structure. The company is what is their ultimate parent company, right? What is the entity that will be taking in the capital that is going to be invested by the U.S. investor? So the issue of, you know, does the CEO, does the founding team need to move to the U.S. is typically a question of to what extent does the U.S. VC need the business to be in America? And I think what we typically see is if it makes operational sense for management to be in the United States, that will typically be a discussion in connection with the term sheet.

19:14Now, will it be built into the term sheet? We've seen it sometimes. But I mean, it can go either way. I don't think it would be correct to say that there's a hard statement that every time that the CEO, for example, needs to move to the U.S., it gets put into the term sheet. But it's certainly something that gets talked about in connection with the raise. But what I will say is that the earlier stage that the company is or the earlier stage that the business is, if they're raising, let's say, a pre-seed or a seed, it's kind of difficult to get those raises led by USVCs without already having an operational profile in the United States.

19:56Again, not impossible, but more often than not, what we see are that the European companies that UK and European companies that are successful at getting a US-based lead at pre-seed or seed usually are in the process of building a US business already, right? They've got substantial management or presence in the United States, like the CEO may have already moved to the US, or is traveling there so frequently that they may be perceived as being in the US. Or the company's got substantial traction in the United States, or they've got substantial experience in the US previously. thing, right? That's another thing.

20:39At this point in the maturity of the UK and European tech ecosystem, there are a lot of founders in the UK and Europe who are serial entrepreneurs, who have already built substantial US businesses, and now are back in the UK and Europe, such as Matt here, right? And someone with that profile starts to play into the American venture concept of pattern matching, right? In other words, if you've done it before, and if the VC is looking to bet on team and TAM, quality of the team and size of the total addressable market, well, if your team has got U.S. experience and you say that you're going after the big TAM of the U.S.

21:19market, that may be enough to get it over the line at pre-seed or seed.

21:24Matt Oxley:And then I think one of the things that I learned as a founder is, and you don't really realize it at first, you kind of think, you know, law firm's a law firm, legal's legal. What I learned over time It's just how critical it is that you have someone representing your company in the negotiation process who understands the VC fundraising process and how the negotiations work. So you obviously have been a part of a lot of those negotiations. Just to the high level, what are the typical things you would see a UK or EU founder want to really negotiate hard on from a term perspective that you'd maybe advise them to save their bullets for a later discussion?

22:03Matt Oxley:What are the things they're going too hard on too early? Yeah, I'm going to, because it also goes the other way too. It's like, what are they not necessarily negotiating enough of? So here's how I want to answer that, is I don't think that there is enough of a widespread recognition in the market about the differences between NVCA and historically what was BBCA, but they recently rebranded to be UK private capital. But for purposes of this discussion, let's refer to it as the BBC and the British Venture Capital Association norms. That the model documents or even actually even putting aside the model documents, what just the market norms are in the UK and in Europe in the document sets are fairly different in some respects from what is normal in more standardized US docs.

23:03Now, it's easy superficially to look at that and say, oh yeah, well, because one set of documents is contemplating a Delaware corporation, the other set of documents is contemplating a UK limited company. And so it's US law, US state law, right? And UK law. But it's actually much more profound than that, right? And this gets to the topics that we either do or don't see enough negotiation on, which is if you're an American DC that usually invests into US-based companies, according to NBCA norms, Delaware Corporation, and you're investing into a UK limited company, right? Is that an English deal or is that an American deal?

23:51It's both, right? And should the governing law of the documents be driving the terms that you can get? In other words, if the investor usually gives NVCA norms on terms, on things like whether it be good lever, bad lever, or investor consents, founder warranties, or anything like that, where you might see a difference on both sides of the Atlantic, Should that be according to American norms or should it be according to English norms when the investor is American, but the docs are English? Right. And I don't think I don't think enough founders spend enough time kind of focusing on that. Right. And if you just sort of, let's say that you're a UK company, UK limited company, and you end up just taking a standard set of market norm terms in the UK, but you're getting them from a US VC.

24:50You want to think through, well, how do the terms that you have now compare to the other companies in the portfolio? Right. If the VC's got, let's say, 10 investments and nine of them are U.S.-based Delaware corporations and you're the only one in the U.K., yeah, there are some differences that you should have because you're a U.K. limited company and just like the requirements of English law are a little bit different. But other than that, shouldn't the terms be somewhat similar? Right. And that's not something that we see, I think, enough companies really focus on. So interestingly, we're starting to hear this in reverse from UK and European investors, because I think I've noticed this as an American lawyer based in London is that there's last maybe couple of years or so, especially maybe the last year, there's been an increasing push for early stage UK and European companies, let's say, to start as Delaware companies at the beginning.

25:46Right. That they don't do the Delaware flip, that they just start from first principles as as Delaware corporations. And without sort of commenting on whether that's the right or the wrong answer, like you can see some arguments that if they expect that they're going to raise from early stage U.S. investors, maybe it does make sense to start as a Delaware company. But one of the bits of feedback that we've gotten from some of the UK and European funds is that they find themselves investing into these, you know, pre-seed stage or seed stage Delaware corporations. But the business is completely European based.