What is an Advanced Subscription Agreement (ASA)?
Q: Is it debt or equity?
A: Investment into a company via an Advanced Subscription Agreement (ASA) is purely an equity agreement. The intention is for investors to pre-pay for shares that will be allocated during a subsequent funding round at a discount to the pre-money valuation as stipulated in the Advanced Subscription Agreement. Unlike a Convertible Loan Note (CLN), monies invested through an ASA cannot be repaid in cash. As such and ASA is equity whereas a CLN can technically be both.
Q: When will I receive shares in the company?
A: Shares are usually issued on the next funding round subject to the company hitting a pre-determined target as set out in the ASA. Should the requirements not be met, come the Long Stop Date, the number of shares that will be allocated is determined by the Long Stop Price.
Q: At what price will the investment convert?
A: The price at which shares will be allocated is usually determined by the next qualifying funding round as stipulated in the ASA. This will either be at a discount to the price per share of that round or there will be a stated maximum share price at which it can convert.
Q: What if the company becomes insolvent before a qualifying funding round and my shares have not been allocated yet?
A: This is dependent on the terms of the ASA. In some cases, the monies invested through an ASA that has not been allocated yet will be treated as debt and can be repaid in cash, ranking alongside other unsecured creditors of the company.
Q: What if the company is sold before a qualifying funding round and my shares have not been allocated yet?
A: In the event of a sale of the company prior to a qualifying funding round, often shares will be allocated just before the funding round at the sale valuation or a discount to the sale valuation – as stipulated in the Advanced Subscription Agreement.
Q: What if the amount I invested is not divisible by the price per share when it comes to allocation?
A: This is dependent on the terms of the ASA. In some cases, the company will allocate shares rounded up to the nearest whole share. In some cases, the company will allocate the number of shares that are fully paid for and investors will be required to pay any extra to make up for fractions of shares.
Q: Can you receive interest on monies invested in an ASA?
A: It is usually not possible to receive interest on monies invested through an ASA as it is purely an equity instrument.
Q: Are the shares SEIS/EIS eligible through an ASA?
A: Whilst it is not possible for Convertible Loan Notes to be EIS eligible, it is possible for ASAs to be, though not all are. The company will provide information on whether they have been advised that the structure of their ASA is SEIS/EIS eligible.
Q: What class of share will be allocated to me?
A: This is dependent on the terms of the ASA. In some cases, there may be a choice of which class of share to subscribe for, while other times this will be set. Whether there is a choice or a set class of share, these will be the same terms as the lead investor is subscribing for.