How to raise investment while your investors are on holiday

Your business desperately needs funding. Good news: You have investor interest. Everything’s in place for you to raise your next funding round. But there’s one problem – everyone’s on holiday for the summer.

While you could shift your round to autumn, that delay might be the difference between getting to the next stage vs. having to pause hiring, lay off staff or even close the company.

Here’s how you can close those investments before the summer slump sets in.

SeedFAST

A SeedFAST, also known as an Advanced Subscription Agreement (ASA), is an SEIS/EIS-friendly way to get investment into your startup ahead of a funding round.

How does SeedFAST work?

A SeedFAST allows founders to get money in now, but agree a valuation and issue shares later.

The advantage of a SeedFAST is that it defers the negotiation and agreement on the company’s valuation until you’re ready to do a funding round with a larger group of investors, or a lead investor, later. Rather than relying on a lead investor to come in now and set the valuation – who, over the summer period, is likely to be on vacation – you can start raising investment without an agreed valuation, and then issue shares when the valuation is determined in your next round.

To sweeten the deal, you’ll typically offer a 10% to 20% discount to SeedFAST investors, meaning that by getting in early, they’ll have bought their shares for a lower price than those investing in the funding round later.

With their cash you can get to work scaling your business before kicking off a funding round with other investors later.

When you do your next funding round and the valuation set at that time the shares are issued to the SeedFAST investors at that valuation less the discount, or the agreed valuation cap if the cap was less than the valuation.

For the SeedFAST to be SEIS/EIS compatible, HMRC requires that The SeedFAST has to convert within six months, regardless of whether you’ve had a funding round or not. So when you create the SeedFAST, you’ll also specify a longstop valuation and a longstop date, which will be typically 6 months. That means that when the 6 months is up, if you haven’t done a funding round before then, you’ll issue shares to the SeedFAST investor at that agreed longstop valuation. 

When should I use SeedFAST?

SeedFASTs are typically used ahead of a funding round, making it a great option if you come across some investors who are happy to invest over the holiday period. In our first funding round at SeedLegals we noticed some investors signing the funding documents on their phones in Ibiza, and wiring the funds while they were on the beach. We loved that, and it inspired our advice that there’s no need to take a break on your fundraising just because it’s summer, with SeedLegals it’s all online, everything is e-signed, you can complete everything on your phone.

Instant Investment

While SeedFASTs are a perfect way to raise from individual investors when you don’t yet have an agreed valuation, if you already have an agreed valuation, there’s an alternative that we call that Instant Investment.

The principle is similar to SeedFAST. Instead of waiting for all the investors to come together to do a new funding round, you raise from individual investors as you find them.

But while a SeedFAST is “money now, agree valuation and issue shares later”, Instant Investment is “money now, issue shares at an agreed valuation now”.

Now, the time when you have an agreed valuation is typically right after your last funding round, and so Instant Investment is a great way to top up a recent round, compared to SeedFASTs which are a great way to raise ahead of a future round. 

What is Instant Investment?

Instant Investment allows you to top up after closing a funding round with investments from individual investors. Through this agile fundraising option, you can draw up agreements for investors as and when they come along, without needing to wait for other investors to set up a full funding round.

What makes Instant Investment simple is that instead of agreeing to a whole new set of funding round deal terms, your new investor joins onto the last round under the same terms as the last round, but at a higher valuation if you wish.

Because the investor is joining the last round Articles of Association and Shareholders’ Agreement you’re skipping all the negotiation that goes into agreeing the funding round deal terms, that’s already done. The investor has a simple choice: either agree to the last round deal terms and come in now, or if they don’t want to agree to the last round deal terms (e.g., they want preference shares, but there were no preference shares in your last round), then you’ll have to get back to them when the time comes for your next round. 

SeedLegals helps you fundraise, anytime 

Whether you’re fundraising right now or planning for the season ahead, SeedLegals has got you covered, come rain or shine. Get in touch with a member of a friendly team to see which investment approach is best for you.