What Is an Advance Subscription Agreement?
An advance subscription agreement (ASA) is a way for you to invest in a company, often a startup, before shares are actually issued.
With an ASA investment, you pay upfront, and in return, you’ll receive shares at a later date, usually after a trigger event like a new funding round.
You’re not buying shares straight away. Instead, you’re agreeing now to get shares in the future, usually at a price based on the company’s valuation at that time.
This is handy if the company hasn’t set a current valuation yet.
Key features of an ASA agreement include:
- No shares are issued at the start; your money is held until shares are allotted later.
- Shares are typically priced at the next funding round or a pre-agreed event.
- Often used for early-stage funding where speed and flexibility matter.
For example, if you invest £20,000 through an ASA, you don’t get your shares instantly. Later, when the company raises its next round or hits a milestone, your investment turns into shares, often at a discount to the new valuation.
When Is an Advance Subscription Agreement Needed?
If you’re planning to raise funding quickly but aren’t ready to set a company valuation, you may need an advance subscription agreement (ASA).
This commonly happens in the early stages of a startup when there's not enough information to confidently agree on how much your company is actually worth.
You might also use an ASA when you want to secure investors now, but plan to do a larger funding round later. This lets you take in cash today without the pressure of finalising all the terms right away.
Here are a few situations where ASA funding is usually needed:
- Bridge financing: When you need short-term cash before your next big investment round.
- Down rounds or complex valuations: When existing market conditions mean setting a valuation is tricky or might negatively impact existing shareholders.
- Unlocking tax reliefs: Some investors require investments to qualify for schemes like SEIS or EIS, and an ASA can help structure this more simply.
- Speed: When investors are ready to commit, but you want to close the deal quickly to move your business forward.
How to Write an Advance Subscription Agreement
Writing an advance subscription agreement needs to be done correctly, but the process can be simplified by following these steps.
Step 1: Begin With the Parties and the Date
Start your agreement by identifying the parties involved and the date on which the agreement is made.
Clearly name the company offering the future equity and the investor who is subscribing in advance. Include their registered addresses and legal identifiers if applicable.
Ensure that you define them consistently throughout the agreement (for example, referring to the company as "the Company" and the investor as "the Investor").
Also, state the effective date of the agreement to mark when it legally begins.
Step 2: Define the Subscription Amount
Next, specify how much the investor is committing to pay under the agreement. This is the advance payment made in exchange for future equity in the company.
Mention the exact amount, the currency, and the method of payment. Clarify whether the payment is due on signing or on a specific future date.
It’s also useful to state where and how the funds should be transferred.
This section creates financial clarity and helps avoid misunderstandings later.
Step 3: Explain the Equity Conversion Terms
After defining the payment, outline how and when the advance amount will convert into equity in the company.
This usually happens at a future financing round, so define what counts as a qualifying round and include a description of the types of shares that will be issued to the investor.
Include the conversion mechanics: for example, whether there is a valuation cap, a discount rate, or both. Also, state the minimum threshold for the financing round to trigger conversion.
This section should be written precisely, as it governs how much equity the investor will receive in the future.
Step 4: Describe the Long-Stop Date or Repayment Terms
Include a clause that explains what happens if the equity conversion event doesn’t occur within a certain timeframe.
You can set a "long-stop date" by which the conversion must happen, and describe the outcomes, such as automatic conversion at a pre-agreed price or a potential repayment of the investment.
You should also state whether the investor has the right to request repayment or if the funds are non-refundable.
Clarity in this section protects both parties if the company does not raise further capital as expected.
Step 5: Address Investor Rights
Now specify what rights the investor will or will not have before conversion.
Usually, advance subscribers do not get voting rights or direct ownership until the shares are issued. However, they may have access to certain information, like financial updates or notices of future financing rounds.
Define whether any of these rights apply and state them clearly.
This section helps manage expectations and defines the investor's role during the interim period before equity is issued.
Step 6: Include Warranties From the Company
At this point, the agreement should include a set of promises (warranties) from the company to reassure the investor.
These may include confirmation that the company is legally constituted, that it has the authority to enter into the agreement, that the shares to be issued will be valid and fully paid, and that no conflicting agreements exist.
These assurances help build investor confidence and may serve as a basis for legal action if the company breaches them later.
Step 7: Add Miscellaneous Legal Clauses
Finish the body of the agreement by including standard legal clauses that clarify how the agreement should be interpreted and enforced.
This may include the governing law and jurisdiction, procedures for resolving disputes, how amendments must be made (usually in writing and signed by both parties), and provisions related to confidentiality.
You might also include clauses on assignment (whether rights can be transferred to third parties) and notices (how formal communications must be delivered).
These clauses round out the document legally and make it enforceable in court if needed.
Step 8: Review and Execute the Agreement
Finally, go over the entire document to ensure that all sections are complete and internally consistent.
Double-check names, amounts, dates, and legal references.
Have the agreement reviewed by a legal advisor, especially if large sums are involved or if the investor is located in a different jurisdiction.
Once finalised, both parties should sign the document and include their names, titles, and the date of signature.
Keep a signed copy for each party, and consider storing a digital copy as well.
The agreement becomes binding upon execution, so take the time to ensure it’s accurate and thorough before anyone signs.
