Advance subscription agreements in early stage investments

Wednesday 30th January, 2019

Early stage investments often need to move at a fast pace, with companies raising smaller sums and not wanting to commit the time, effort and cost to negotiating a full set of documents.

We often see investors looking for SEIS/EIS relief in early stage investments.  Advance subscription agreements (ASAs) have been developed in the UK as an alternative to convertible loan notes (an instrument used by companies to get funding in anticipation of a future conversion into equity) which are not SEIS/EIS compliant.  According to SEIS/EIS legislation capital must be at risk from the outset but under a convertible loan note, it is possible for the investor to be repaid prior to the loan converting into shares.  One of the defining features of an ASA is that the investor cannot recover the advanced capital which must be used towards the issue of shares under every eventuality.

What is an advance subscription agreement?

ASAs are short form instruments which allow investors to fund the company in advance to being issued shares.

How does it work?

Typically, an ASA will provide for the following:

  • the advanced capital will be applied towards the issue of shares in the next qualifying funding round (i.e. a funding round where the company raises above a certain amount);
  • the investor will have the option to request that the advanced capital be applied towards the issue of shares on a non-qualifying funding round;
  • similar to convertible notes, the investor will receive a discount (typically in the range of 10% to 30%) on the issue of shares for the additional risk that it is taking;
  • a long stop date which will ensure that the advanced capital will be applied towards the issue of shares regardless of the funding outcome. HMRC has issued guidance to note that, in order for the advanced capital to be considered a genuine subscription for shares, and therefore qualify for SEIS/EIS relief, the long stop date must be no longer than one year; and
  • limited warranties given by the company (e.g. that the company is not insolvent, it has authority to enter into the agreement and it is not involved in any disputes). The reality is that if the investment amounts are relatively small and if the company relatively early in its lifecycle warranties are often not worth negotiating heavily.


ASAs have the following advantages:

  • they are simple agreements and typically, by comparison to investment documents in an equity fundraising, do not get negotiated heavily meaning that there will be less costs involved and the transaction can be completed in a shorter time frame;
  • as mentioned above, the investor will typically receive a discount on the issue of shares for the additional risk that it is taking; and
  • the company can delay the question of valuation until the next equity funding round.


This article is current as of the date of its publication. The information and any commentary contained in this article is for general information purposes only and does not constitute legal or any other type of professional advice.  Marriott Harrison LLP does not accept and, to the extent permitted by law, excludes liability to any person for any loss which may arise from relying upon or otherwise using the information contained in this article.


Articles by David Strong