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 CNLs 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. As such, an ASA is equity whereas a CLN can technically be both.

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