Agile fundraising: Introducing SeedFAST and SeedNOTE

The ability to fundraise is make or break for many startups. The traditional fundraising process can be messy, difficult and complicated, and then there’s the question of what to do if you have investment on the table before or between rounds. That’s why we built SeedFAST and SeedNOTE: to make agile fundraising possible – they’re tools to help you raise efficiently and close deals quickly, whenever the opportunity arises.

What is SeedFAST?

SeedFAST is our enhanced version of an Advanced Subscription Agreement, or, if you’re familiar with fundraising in the USA, a SAFE (‘Simple Agreement for Future Equity’). SeedFASTs allow investors to invest money now which will convert into shares at the next funding round, at a valuation determined at that future funding round.

SeedFAST investors are usually given a 10% to 20% discount, so that they get shares in the next round at a lower valuation than the investors in the round to compensate them for their advance investment. The best part? Using SeedFAST, you’ll get the investment money faster and the legals can be completed in minutes.

An advantage of SeedFAST is that you don’t need to set a valuation, which can be difficult to calculate for early-stage companies. Instead, your investors can choose to get their shares when you close your next funding round.

Because SeedFASTs are carefully worded and easy to understand, it’s common for investors to sign them within 24 to 48 hours of receiving the document. This means you get an instant injection of cash without weeks or months of negotiations.

What is SeedNOTE?

SeedNOTE is a Convertible Loan Note (CLN) – in legal terminology it’s known as a ‘short-term debt instrument’, an agreement that can be converted into shares or redeemed for cash. Convertible Loan Notes used to be complicated and expensive to create because they deal with complex deal terms.  Until we launched SeedNOTE – our CLN offers a simplified way to determine, organise and describe with those complex deal terms.

SeedNOTEs give investors debt in your company, which will then be converted into shares either in the next funding round or at the longstop date if there’s no funding round before then. (The ‘longstop date’ is a deadline specified in the contract – if the conditions aren’t fulfilled by this date, the contract terminates.)

There are a couple of reasons why some investors prefer convertible debt. Firstly, because these agreements typically have an interest rate which the company pays to the investor. Secondly, because SeedNOTEs give investors more protection if anything goes wrong. If your company is insolvent or looking to liquidate or wind up, debt ranks higher than equity – so if there’s money available, the holders of any debt would get paid ahead of any shareholders.

SeedNOTEs also give investors back their money if your company fails to raise a ’qualifying funding round’ – that is, a future funding round that raises at least the specified amount of money within a pre-agreed time.

Should I use a SeedFAST or a SeedNOTE?

• SeedFASTs are for quick and simple one-off investments. With the extra time you get back, you can stay focused on growing your business.
• SeedNOTEs are for when you have investors who want more complex terms such as interest on their investment.

How quickly can the investment be closed?

• SeedFAST – 24-28 hours
• SeedNOTE – 1-2 weeks

When does the investment convert into shares?

• SeedFAST – At the next funding round
• SeedNOTE – Either at the next funding round, or at the longstop date if there is no funding round before then

How much interest is payable to investors?

• SeedFAST – None
• SeedNOTE – Usually 2-10%

What happens if no funding round takes place by the longstop date?

• SeedFAST – Convert into shares
• SeedNOTE – Either company repays the capital and interest accrued, or convert into shares

Start agile fundraising

With our SeedFAST advanced subscription agreements and SeedNOTE convertible loan notes you can start agile fundraising ahead of a funding round.

To find out more about how SeedLegals can help with your fundraising legals, book a chat with one of our funding experts.