Advance Subscription Agreement (ASA)
The UK instrument that does the SAFE’s job: the investor pays now for shares issued at the next round, at a discount or a cap. Drafted so the money still qualifies for SEIS and EIS relief, which requires that it cannot be repaid, carries no interest, and converts within six months (HMRC’s longstop). A SAFE itself does not qualify, which is why the ASA exists.
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Why Advance Subscription Agreement (ASA) matters in interviews
The ASA is the instrument on which most British angel money arrives, and knowing why it exists rather than a SAFE is a compact way of showing an interviewer that you understand how UK tax relief shapes UK deal terms. It comes up at every UK seed fund and at any US fund that has looked at a British company’s cap table and wondered what the acronym was.
How it works in practice
The shape. An investor pays the company now and the company issues shares at the next funding round, at the round price less a discount (typically 10 to 30%), or at a price implied by a valuation cap, or at whichever is lower. If no round occurs by a longstop date the shares are issued at a fallback valuation written into the agreement. So far it is a SAFE.
The differences, all of which come from HMRC. To keep SEIS and EIS relief the payment cannot be refunded under any circumstances, cannot earn interest, and the agreement cannot be varied, cancelled or assigned; the longstop must be no more than six months from the payment. The investor is taking full risk from the day the money is paid, and that is precisely what the relief requires. A US-form SAFE fails on the refund right at a liquidity event and on the absence of a longstop.
The consequence. Because the longstop is six months, an ASA is a short bridge to a priced round that is genuinely expected, not a way of deferring a valuation for two years. Founders who raise on ASAs are committing to close a round within the window, and the fallback valuation is negotiated hard because it is what the investor gets if they do not.
What candidates get wrong
- Adding investor-friendly terms. A refund on a sale, a variable discount, a longer longstop: each one that looks harmless is a term that can cost the angel their relief.
- Calling it a loan. It is an advance payment for shares, and the money is not repayable. A convertible loan note is a different instrument and does not qualify for SEIS or EIS.
- Missing the six months. HMRC’s view of what counts as a genuine advance subscription is the longstop, and an ASA that has quietly run past it is a relief problem for every investor on it.
Advance Subscription Agreement (ASA): frequently asked questions
What is an advance subscription agreement?
A UK instrument under which an investor pays a company in advance for shares that will be issued at the next funding round, usually at a discount to the round price or under a valuation cap, with a fallback valuation if no round occurs by a longstop date of at most six months. It is drafted to meet HMRC’s conditions for SEIS and EIS relief: the money cannot be refunded, earns no interest, and the agreement cannot be varied. It is the UK equivalent of the American SAFE.
Why not use a SAFE in the UK?
Because a US-form SAFE does not qualify for SEIS or EIS relief. It gives the investor a right to their money back at a sale before conversion and has no longstop, and HMRC treats both as inconsistent with a genuine advance subscription for full-risk shares. A British angel investing through a SAFE would lose 50% or 30% income tax relief that an ASA preserves, so the ASA is used instead.
Practise it
Take a company from founding through a SAFE and a priced seed round. Set the cap, the pre-money and the option pool, watch the price per share and every holder’s stake move, then check your own arithmetic against the table.
Open Cap Table Builder, free, 15 minWhere Advance Subscription Agreement (ASA) comes up
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