Advanced Subscription Agreement (ASA)

Quick facts

An Advanced Subscription Agreement (ASA) is an equity instrument where investors ‘pre-pay’ for shares in a company – they hand over money but receive their shares when these are issued at a future funding round. ASA investors will pay less for these shares than other equity investors (i.e. they buy shares at a discount). An Advanced Subscription Agreement is a 100% equity agreement.

Seed and start-up businesses often need funding very early in their lifecycle in order to get a concept off the ground, develop a commercial offering or start trading. Alternatively, at the other end of the scale, a mature business might also want to make use of this equity instrument.

If you’re in either of these camps, you’ve the option of raising finance through Convertible Loan Notes (CLNs), which are debt instruments that can convert into shares in the future. Or you could go down the ASA route, which means you’d get subscription money for shares up-front, but your company would be valued – and shares issued – at the next funding round. In other words, under an ASA an investor agrees to buy shares in your company (i.e. provides you with equity funding) but you don’t issue the shares immediately. 

If you’re in the start-up camp, an ASA investor will typically receive a discount of 10–30% on the valuation applied at the next round. This is in return for taking the additional risk of early funding. The advantage to you is that you get the cash before your first qualifying funding found. 

You may have read about the pros and cons of ASAs versus CLNs, especially in the context of the Future Fund. From the investor’s standpoint, ASAs are slightly less beneficial than CLNs if your company enters liquidation, because the holders of CLNs rank higher than shareholders. Also, funds advanced under an ASA don’t bear interest whereas CLNs usually do.

From your perspective, you can’t pay back money invested through an ASA but you can pay back a CLN.

There are six main types of equity finance:

Business angels – Business angels are private individuals who are prepared to put their own money into start-up or early-stage businesses in exchange for a share of the company’s equity (i.e. equity finance). Angels may invest on their own or as part of an angel network. Typically, they are experienced entrepreneurs and, in addition to money, they bring their own skills, expertise and contacts to the table.
 
Venture capital – Venture capital is financing given to start-ups and early-stage businesses. Venture capital funds look to invest larger sums of money than business angels – typically more than £250,000 – in return for an equity stake. Venture capital is most suited to high-growth businesses with long-term growth potential, i.e. those destined for sale or public listing (IPO).
 
Private equity – Private equity is a type of equity financing suitable for established private businesses. Private Equity funds give your business money in return for a large or controlling share in your business.
 
Equity crowdfunding – Equity crowdfunding is a type of equity finance whereby people (‘the crowd’) invest in an early-stage unlisted company, in exchange for shares (equity) in that company. Individual investors thus become shareholders and stand to profit if the business does well – they might also lose some or all of their investment. Equity crowdfunding usually takes place over an online platform.

The government’s Enterprise Investment Scheme (EIS and SEIS) and VCTs.

Initial public offering (IPO).

You might also consider family offices and Tier 1 investment.

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