The legal points seed investors check before they invest, from structure and cap table to founder vesting, IP and licences, and how to prepare so that diligence helps your round rather than delaying it.
At seed stage, investors are backing a team and an idea, but they still carry out legal due diligence before they sign. The checks are lighter than at later rounds, but problems found at seed stage are cheaper to fix and less likely to cost you the deal. This briefing sets out what investors typically look for and how to prepare.
1. The right structure
Investors want to invest in a company that can grow into the group the business will become.
- Holding company. Many regional startups raising from international investors use a holding company in Delaware, the Cayman Islands or the UAE (ADGM or DIFC), with the operating company in Egypt, Saudi Arabia or elsewhere as a subsidiary.
- Timing. If you need a new holding company, set it up and move the operating company under it before the round, not in parallel with closing.
- Local compliance. The operating company should be properly established, with its commercial register, tax registration and any required regulatory filings up to date, including Egypt's quarterly FDI reporting where there are foreign shareholders.
2. A clean cap table
Investors will ask for a fully diluted cap table and check it against the company's documents.
- Every share issuance, SAFE, convertible note and option grant should be documented and approved.
- There should be no informal promises of equity to early employees, advisers or friends that are not reflected in signed documents.
- Any option pool should be in place, or its size agreed as part of the round.
3. Founder arrangements
- A founders' agreement setting out roles, decision-making and what happens if a founder leaves.
- Vesting. Investors usually expect founder shares to vest over time, commonly four years with a one-year cliff, with good leaver and bad leaver provisions.
- Commitment. Investors may also ask for confidentiality, non-solicitation and, where enforceable, non-compete undertakings.
4. Ownership of intellectual property
For most startups, the IP is the business. Investors will want to see that the company, not the founders individually, owns it.
- IP assignments from each founder for work done before and after incorporation.
- IP clauses in employment contracts and contractor agreements, especially for developers and designers.
- Registration or at least an application for key trademarks, and control of domain names and code repositories.
5. Employment and contractors
- Written contracts for employees and contractors.
- Compliance with local employment and social insurance rules. In Egypt, documents should reflect the new Labour Law, Law No. 14 of 2025.
- Clear treatment of anyone who is promised equity.
6. Licences and regulation
Businesses in regulated sectors face closer scrutiny. Fintech, payments, lending, health and data-heavy businesses should be ready to explain what licences they need, which they hold and their plan for the rest. Data protection compliance, including Egypt's Personal Data Protection Law, Law No. 151 of 2020, is increasingly part of the review.
7. Key contracts
Investors may review major customer, supplier, partnership and platform agreements, looking in particular for exclusivity, change of control and termination rights that could affect the business after investment.
8. The investment terms
Seed rounds are commonly done on a SAFE or convertible note, or as a priced round with preferred shares. Whatever the instrument, founders should understand:
- the valuation cap and discount for convertible instruments, or the valuation and share price for a priced round;
- investor rights, such as pro-rata rights in future rounds, information rights, a board seat or observer seat, and consent rights over key decisions;
- most favoured nation provisions and how earlier SAFEs interact with the new round;
- the option pool and whether it is created before or after the investment.
9. A well-organised data room
A clear, complete data room shortens diligence and signals that the company is well run. It should include the corporate documents, cap table, founder and IP documents, key contracts, employment documents and licences, with a short index.
How we can help
We advise founders on structuring and closing seed rounds, and prepare due diligence folders for startups negotiating with investors: organising the existing documents, identifying and preparing what is missing, and assessing the folder and the company's investment readiness before it is shared. Our startups page also offers free templates you can request. Contact us to prepare for your round.
This briefing is for general information only and is not legal advice. For advice on your situation, contact us.