Raising capital with a SLIP

An alternative to the regular share issuance?

A Startup Lead Investment Paper (SLIP) is a faster, simpler way for early-stage companies to raise capital than running a full share issuance.

There's a lot to think about as a founder when you're raising capital, especially the first time. Using a SLIP lets you postpone some of the trickier questions and still raise capital in a clean, predictable way.

A SLIP is a standardized agreement for early-stage financing of startups. It provides a structured framework for the investment process and usually covers the key terms and conditions, valuation, ownership share, and investor rights.

SLIPs are designed to simplify and speed up the capital-raising process for both founders and investors. It's a more efficient and transparent approach than a regular share issuance. The agreement works best when the full startup team isn't yet in place.

Put simply, a SLIP lets the company raise capital in a founder-friendly way, in exchange for giving the investor(s) the right to subscribe for shares in the company at a future point in time.

The SLIP was created by Stig Nordal after his time working with tech companies in Silicon Valley. It's a Norwegian adaptation of how Silicon Valley approaches early-stage capitalization. In the US, founders typically use KISS (Keep It Simple Stupid) or SAFE (Simple Agreement for Future Equity) to solve the same problem.

1. It's hard to set a fair valuation on an early-stage company.

2. It's hard to give the core team meaningful incentives at the early stage.

3. Everything takes longer than it should.

An early-stage startup is often worth very little if you only look at its inherent value. You might just have a strong vision and a solid plan, and therefore a lot of potential. To make it real, founders need both ownership and (a lot of) capital to actually create value.

The first investors are essentially giving the company "runway", the time the company has before it runs out of cash, in the hope that real value gets built before the first traditional funding round. That's the round where the valuation actually gets set, and that valuation then also applies to the SLIP investors.

If you follow a traditional capitalization process, the "paper value" of the company goes up as a result of the funding round.

If you then want to bring in co-founders or core team members with shares after the round, they'd either need to invest a meaningful amount themselves or buy shares at a discount and pay benefit tax. For most people, that's a higher price and risk than they're willing to take, which makes it hard to get them on board.

If you've raised money through a SLIP, co-founders can buy in at a much lower price, often as a share of the company's initial capitalization. The risk usually becomes manageable.

This sidesteps a chicken-and-egg problem: the company doesn't have the money to bring strong people on, or the valuation is already too high to incentivize co-founders properly.

A regular share issuance involves a fair bit of paperwork and formality. You need to hold a general meeting and issue shares; everything has to be filed and registered with the Brønnøysund Register Centre. It's nice to skip that work when the company is a handful of people with more than enough on their plates already.

To reduce the admin around a funding round, it's common to pool several investors together before doing the formal work, convening the general meeting, passing the resolutions, and so on. If the round drags on, there's a real risk that the first investors back out before the money is transferred, internal reprioritization, macroeconomic shifts, geopolitical changes, whatever.

Not every investor has experience with SLIPs, so some may be skeptical of this way of investing.

It's important to understand the terms of the SLIP agreement and what its consequences are, whether the company's value goes up or down from here.

Investors often ask for a discount on the valuation at the point of conversion, or set an upper limit on the company's valuation (the "valuation cap"). Sometimes both are used together. These mechanisms protect investors from some of the potential downside and reward them for the high risk of putting money in early. If a valuation cap is used, you're effectively setting the post-money ownership stake.

Simplified example: an investment of NOK 1,000,000 with a valuation cap of NOK 10,000,000 leaves the investor with 10% ownership after the round.

If you have multiple SLIPs, convertible loans, options, and subscription rights running at the same time, it's important to calculate dilution correctly and in the right order, so that everyone ends up with the right number of shares per their agreements. Unlisted's ownership portal calculates this for you and helps you keep track.

Get in touch if you need help with a funding round and dilution questions.

Our recommendation: every early-stage company looking to raise capital should at least consider a SLIP when planning their fundraising approach.

We at Unlisted help founders succeed in building companies from a business perspective. Lawyers and accountants also bring important perspectives when it comes to using SLIPs and complex capital increases.

Article about SLIP in Shifter (in Norwegian): shifter.no

SANDS memo describing SLIP: Google Docs

SLIP agreement template from Startup Lab: Google Docs