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What is an advanced subscription agreement? 

During the early stages of a company’s life cycle, start-up businesses will often need to raise finance in order to begin trading and get their initial product or service off the ground. Similar to convertible loan notes where funding is converted into shares later on in the business’ life cycle, advanced subscription agreements (ASA) provide funds promptly to seed stage companies. As the name suggests, under advanced subscription agreements, the funders provide subscription money for shares up front; however, the shares are not issued immediately. Instead, shares are issued to investors at the first formal funding round. For this reason, ASA investors are able to benefit from a discounted subscription price when the company enters its first equity funding round. Additionally, companies may prefer utilising ASAs because, unlike issuing convertible loan notes, they will not have to pay interest on the funds received.  

It is important to note as a potential disadvantage, however, that because shares are given to investors at such a discount, the company’s own remaining shares will be diluted. In addition, perhaps the mere existence of advanced subscription agreements may deter investors in from subscribing to shares in subsequent funding rounds. This puts the company at risk of giving out a higher percentage of equity for the funds advanced than new investors.

Who drafts an advanced subscription agreement?

Advanced subscription agreements are typically drafted by the company selling shares to investors and other funders. When deciding specific terms of the agreement, for example, what amount constitutes the company’s target during its qualifying funding round, it is important to keep in mind maximising value for both investors and founders. For instance, it is likely to be in the interest of founders to set a higher target value so that the company raises more funds and has an overall higher valuation when their shares convert. 

Who needs an advanced subscription agreement? 

Advanced subscription agreements are most ideal for start-up companies as they will be able to obtain finance quickly. It is also considerably less arduous for smaller companies in particular because advanced subscription to shares means the company will not need to be valued until the first funding round. As you may know, the valuation of start-ups can be notoriously difficult, so ASAs provide an efficient and hassle-free way of obtaining finance without giving up too much equity too early on in your company’s life cycle. 

What is included within an advanced subscription agreement? 

Amount of the valuation capThe terms of the advanced share agreement itself will vary between companies; however, most agreements will generally stipulate that the funding converts into shares when a qualifying funding round occurs, the company is sold, or a long-stop date is reached. A qualifying funding round provides that a certain target in terms of funding amount must be met before the shares can be issued. 

Qualifying funding round – The definition of the aforementioned qualifying funding round must be considered and negotiated by the founders so that the company knows when funding will be converted into shares. This also ensures the investors receive an adequate percentage of shares issued.

Long-stop date – This is the date by which time the shares must be issued to investors. Typically, this date will be 12 months or less from the date of the advanced subscription.

Trigger events – These are the milestones or events that will lead to the advanced subscription agreements converting into shares.


Utilising advanced subscription agreements as an equity instrument can be extremely advantageous for seed-stage companies or start-ups as it does not require an immediate valuation of the company and is a source of immediate funding. However, it is still essential that your founders negotiate the terms embedded within your agreement as this will determine how much each share is worth and when investors’ ASAs will be converted. 

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