When Your Winner's Markup Costs You the Most
The note lands on a Tuesday, and it is the good kind. Your best seed company has raised again, several times the price you paid.
You reply, and you mean every word. That three-year-old punt is now the line on the page that proves the whole thing works.
Then, before the laptop shuts, the colder thought. The number making you proud is one you will never touch.
Last week was a fine week to be a founder. UKTN counted £480.1m into UK tech across a dozen rounds, almost all of it priced and led by institutions.
Read the same list as the person who wrote the first cheque, and it is a wall of graduations.
Companies leaving the stage where an angel's money does its work, and entering the one where it mostly cannot follow.
A graduation is meant to be the happy ending. For the angel who was there at the start, it is the moment the position changes character, and not in the direction the announcement implies.
The up-round prints a new number on your stake. On paper you are several times richer than on Friday.
That number is the most dangerous one in your book.
It is dangerous for three reasons.
You cannot bank it. There is no buyer for a seed position at someone else's Series A, so the mark is paper until an exit years off, if it arrives at all.
You often cannot follow it. The pro-rata that would hold your share is now a cheque at the new, much larger price, and unless you set money aside at the start, it is not money you have.
The notice comes with a short clock: wire your share within the window, or sign the waiver.
And you may not be able to defend it. A flat or down round two years on marks the trophy back down, and you carry both moves without a penny of either reaching your account.
Now the part the good news leaves out.
When you cannot write the pro-rata, someone else does, and they buy the slice of the upside your cheque used to carry.
Super-pro-rata rights and the occasional pay-to-play clause only put that transfer in writing.
The celebrated number is the sound of you being moved down the cap table.
None of this is anyone behaving badly. In a hot round the founder's attention is on the new lead; the early backer becomes a line to be managed.
The gravity simply sits where the new money is.
A markup is hardly bad news in itself. It raises your next fund more easily, and sometimes the company really is worth every turn of the new price.
The error is treating the mark as money. It is a claim on the future written in the present tense, and the spreadsheet records it as though the wire had cleared.
That same mark travels into your quarterly review and lifts the bar. It flatters the page and weakens your position at once, and only the first ever shows up in a column.
The angels who come through with their holding intact did the work two years earlier. Usually they are the operator-angels, who have run a cap table themselves.
They took pro-rata and information rights while they still had the leverage. They earmarked a reserve against this exact company, so a follow-on would be a decision and not a regret.
They set their line at entry, when a single page of terms was still negotiable, not in the celebration, when none of it is.
So the next up-round note is really two questions: what did you reserve for this company, and do your rights still let you act on it?
If the honest answers are "nothing" and "none", the markup belongs to the new lead.
The up-round is still good news. It is simply someone else's, unless you arranged, a long time ago, for a share of it to be yours.
Spinout capital is organising itself. The Midlands launched Mindforge this week, a place-based fund built by eight universities; Creator Fund closed £42m for science founders.
Meanwhile the USIT guidance keeps nudging the standard university equity stake down toward 18%, from a quarter. Watch whether cheaper founder equity and patient regional money change which spinouts ever reach your desk.
SEIS funding rose 14%. Two thirds of it still went to the South East.
HMRC's statistics (21 May): SEIS companies raised £276m in 2024-25, up from £242m, while London and the South East still took 60% of EIS and 66% of SEIS.
The schemes are doing their job; the map is not. If your dealflow only ever shows you the South East, the statistics are describing your address book, not the market.
Gnosis Health raised £1.1m to take Parkinson's-care AI out of Newcastle.
The Newcastle spinout closed £1.1m from SFC Capital, Northstar Ventures and an Innovate UK grant, for AI that helps the NHS monitor Parkinson's patients, UKTN reports.
Angel-stage seed in a week the headlines gave to nine-figure rounds, grant-braced and a long way from London. The real question is who writes the cheque after SFC, and whether they sit within 200 miles.
PhysicsX raised £225m for industrial AI, doubling its value to about £1.8bn.
The London company's Temasek-led Series C roughly doubled its valuation to about £1.8bn; PhysicsX builds AI that simulates physical engineering for manufacturers, UKTN reports.
Note where the week's biggest cheque went: past the model wrappers, to AI with a physical product and real buyers. A nine-figure round into applied engineering is a vote on which AI value is real.
Run the seed cheque forward.
An entry price is only as good as the rounds that must follow it. A fair-looking price into a company that needs a brutal Series A it may never raise is just an expensive cheque wearing a discount.
So before you write the seed cheque, run the company forward through two priced rounds at today's dilution, and look at what is left of your stake at the end.
Before the next seed cheque: if this works, who prices the next two rounds, and what is left of you when they do?
A question runs here every Wednesday. This is this week's.
Do you set a follow-on reserve at entry?
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Ever watched a winner up-round straight past a pro-rata you couldn't fund? Reply and tell us what happened.
Replies reach the editor directly. We read and respond to every reply, whatever the question.
Tax31 Jul 2026 Self Assessment: second payment on account for 2025/26.
Tax5 Oct 2026 Deadline to register for Self Assessment (new filers, 2025/26).
Tax31 Jan 2027 Self Assessment filing and balancing payment; where EIS and SEIS relief is claimed.
FiscalDate TBC Autumn Budget 2026 (HM Treasury, date not yet announced).
The Carry · thecarry.co.ukWorth a screenshot for your diary.
A markup is a lovely thing to read and a poor thing to spend. When the next one lands, enjoy it, then remember the wire has not cleared and may never. The deals you can act on beat the ones you can only admire. Go and find one.
Until the next round.
Know an investor who forwards every up-round to the group chat, and never once mentions the pro-rata they let slide? Share this issue with them.
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