SeedFAST equity dilution calculator
A SeedFAST is an SEIS/EIS-friendly way to raise cash ahead of a funding round. Investors give you money now, they get sh...
You need funding, and you need it fast. Advanced Subscription Agreements are instruments commonly used by start-ups to raise funding before doing an investment round. They move much quicker than traditional priced rounds, so entrepreneurs can hit the ground running with funding.
It works like this: investors hand over the money upfront and receive shares at a later date when the agreement converts into equity – this normally happens either at your next funding round, or at some pre-agreed date in the future, i.e. the longstop date. An example of this type of agreement is Y Combinator’s SAFE agreement, launched back in 2013.
This funding model has proved extremely popular internationally, so it’s no surprise these agreements are increasingly common in the Irish market.
At SeedLegals, we wanted to take all the best parts of a SAFE agreement and make it work for Irish start-ups. Our enhanced version of the Advanced Subscription Agreement – SeedFAST – is a form of agile fundraising that allows companies to take in funds without having to spend the time and cash on a funding round immediately.
For start-ups that aren’t ready to take the priced round plunge, it provides a financial stopgap to keep your operations running. It also prevents you from having to set a valuation on the company – instead, the company valuation will be determined at the time of conversion. You can create a SeedFAST in less than 10 minutes on SeedLegals, with full control over all the key terms. For your friends and family, this is a quick and easy way to take in their investment ahead of issuing them shares.
This isn’t the only option for Irish start-ups wanting to do things differently. NDRC, Ireland’s national tech accelerator, has released an open-source Advanced Subscription Agreement (ASA) NDRC SAFE. It works a little differently to Y Combinator’s SAFE and SeedFAST, but has its own unique benefits too. This has been a welcomed move by NDRC as is their wider commitment to educating and supporting Ireland’s startup scene.
To help founders make a decision on how they use these instruments to raise investment, we’ve carried out a comparison of SeedFAST and NDRC’s SAFE, comparing the conversion events, termination rights, discount and valuation cap, and the overall control you have of your agreement.
Here’s what we learned:
The NDRC SAFE agreement includes three conversion events (into equity, or sometimes cash):
The SeedFAST includes the same conversion events, with one addition – you can set a longstop date by which the SeedFAST will convert at if you don’t hit any of the above events.
This means if you don’t end up doing a round, or hit any of the other conversion events, the agreement will convert at the longstop date and the shares will be issued to your investor. It gives both you and your investors more certainty as to when the agreement will convert.
It also makes the SeedFAST SEIS/EIS eligible, should you have UK angel investors who can benefit from tax relief, as long as you set a longstop date of 6 months. SEIS/EIS is a UK government initiative which allows UK angel investors a significant tax break when investing into early stage, high risk companies. SEIS/EIS is a great opportunity for early stage companies, as it provides a huge incentive for your UK investors to fund your company and bring your vision to life. Under SEIS your investor may qualify for up to a 50% income tax relief offset against the amount invested, and under EIS they will benefit from a 30% offset against the amount invested.
If you are interested in applying for Advance Assurance to see if your company is eligible, SeedLegals can help with your application.
Also, when it comes to converting your SeedFAST, SeedLegals can assist you with this if you end up hitting your longstop date, or through our Funding Round product if you’re bringing more investors to the party. If you’re doing multiple SeedFASTs in one go, you can synchronise the conversion dates so they all convert at the same time to save you from unnecessary administrative hassle.
The NDRC SAFE has the possibility of a refund as a termination right, which provides a financial security net for your investors, who can choose to receive their refund and the company can agree to pay the full investment amount.
Our SeedFAST agreement features a longstop date, as mentioned above, to ensure that it is an SEIS/EIS eligible agreement, (NB the long stop date must be set to be no longer than 6-months).
Discount and valuation cap .
NDRC has released two versions of their SAFE; one that allows you to set a discount for investors with no valuation cap, and another that allows you to set a valuation cap but no discount. Here’s what those terms mean in practice:
The NDRC SAFE agreement doesn’t allow investors to get a discount and a valuation cap at the same time – they have to choose one or the other. This is where SeedFAST differs. Investors can set a discount and a valuation cap, and if you have enabled both a discount (from the valuation at your next round), and capped the valuation at which your SeedFAST will convert, your SeedFAST will convert at the lower of the valuation less the discount, and the cap.
Overall control of your Agreement
SeedFAST provides you with options that safeguard your business and maximise investors’ return. You have control over the key terms of your agreement, including whether your investor will receive the best available share class in the round, or if you would like to specify the share class in the agreement. You can also decide whether you want to give your investor a board observer seat.
The NDRC SAFE does have an investor warranty, but there’s no option to include standard investor disclaimer wording, which protects High Net worth or Every Day investors based in the UK under FCA rules. Again, this shouldn’t be an issue if you’re working with Irish investors, but SeedFAST does provide the benefit of welcoming UK investors too.
NDRC’s SAFE is incredibly founder friendly, while the SeedFAST provides customisable, flexible terms. Both options make securing funding faster, and less complex.
There’s no right or wrong investment model; what works for you will depend on the needs of your start-up and your investors.
Whichever one you choose, the SeedLegals platform has a full suite of products to help you through your next round of funding.