SeedLegals have now launched SeedFAST, an SEIS/EIS-friendly Advanced Subscription Agreement that lets startups get cash in ahead of a funding round.
Why use an Advanced Subscription Agreement?
An ASA is a quick and inexpensive way to raise funds to continue growing your business without having to corral a group of new investors into a funding round with a fixed valuation, fixed close date and long-form legals.
What is SeedFAST?
SeedFAST is an Advanced Subscription Agreement that can be issued to new investors at any time, and allows investors to subscribe for shares in the next funding round, in exchange for their giving you money now. SeedFAST is a carefully worded, easy to understand document which complies with SEIS and EIS legislation.
Advanced Subscription Agreements and S/EIS
Convertible notes are popular in the US, as a way of advancing cash to startups without having to close a funding round, which is often more expensive and time consuming. There are a number of advantages to convertible notes over a funding round, including that unlike a funding round you don't need to set a company valuation, letting you get money in now to grow the company to reach a higher valuation ahead of your funding round. But, convertible notes aren't SEIS/EIS compatible (they fail the SEIS/EIS test because the investor can get their money back) and so they haven't proven popular in the UK where early-stage funding rounds are heavily fuelled by SEIS and EIS investments. So, an SEIS/EIS compatible alternative to a convertible note has been developed, commonly known as an Advanced Subscription Agreement, or ASA. We've built on that to include additional features and integrated it with our online signing process, cap table, share certificates and more, and called it a SeedFAST.
How it Works
Similar to a convertible note, investors give you money now, which will convert into shares at a valuation to be determined at a future funding round. These investors are usually given a 10% to 20% discount compared to investors in the next round to compensate them for their advance investment. Like all SeedLegals products, SeedFAST comes with expert help and insane levels of customer support.
How do I create a SeedFAST
Create a SeedFAST agreement on SeedLegals in less than 10 minutes. SeedFAST agreements are designed to be quick and simple so anyone can create their agreement at any time. But be sure to check the questions and tutorials carefully, and hit the chat button for any queries - we're here to help. Our team of legal and funding experts will review your agreement once it's ready for your investors to sign. Sign up to create a SeedFAST.
For a SeedFAST, when can my investor get their SEIS/EIS tax relief?
When you do a funding round, the investor sends you their money and gets their shares within a few days, so it's clear and unambiguous which date and tax year applies to their SEIS/EIS investment.But, what happens in the case of an SEIS/EIS investment made via a SeedFAST, where the investment may only convert into shares months later after the next funding round - which data and tax year is the investment deemed to have been made in then?The date that an investor's SEIS/EIS investment is deemed to have been made is always the day that they were issued their shares (it's important that you only issue them their shares after you've received their money, otherwise their investment could be deemed to be loan, and they won't get their SEIS/EIS).This means that the tax year in which the SEIS/EIS benefit is given is the tax year when the funding round took place, not the tax year in which the SeedFAST investment was made.At this point you're thinking... oh, that's bad, it means the investor does a SeedFAST with me now, and I don't do a new funding round (when the SeedFAST will convert into shares) until sometime in the next tax year, my investor won't be able to claim SEIS/EIS for this tax year, which is going to make them a lot less likely to invest.While that's true - they can only file their SEIS/EIS claim in the tax year in which their shares were granted - the good news is that HMRC allow you to backdate the claim to the previous tax year, details here
So, you can assure your investor that if they make an investment in your company via a SeedFAST today, even if that SeedFAST only converts into shares in the next tax year, they'll be able to restrospectively claim an SEIS/EIS tax deduction then, for this tax year.When you do a funding round, the investor sends you their money and gets their shares within a few days, so it's clear and unambiguous which date and tax year applies to their SEIS/EIS investment.