What is an ASA (Advanced Subscription Agreement)?
The Advanced Subscription Agreement (ASA) is a standardized UK legal instrument used for early-stage funding. It allows an investor to provide cash to a startup today in exchange for the right to receive shares at a future date, typically when the company raises its next priced funding round (e.g., a Series A).
In essence, the investor is subscribing to future shares but paying in advance.
ASA vs. Convertible Loan Note (CLN) While an ASA functions similarly to a Convertible Note (money now, shares later), its legal classification is fundamentally different and crucial for UK tax purposes:
- CLN: Legally classified as debt (a loan with a maturity date and interest).
- ASA: Legally classified as an equity pre-payment.
The SEIS/EIS Advantage This distinction is why the ASA is the preferred instrument for UK pre-seed and seed rounds. The UK government's powerful SEIS and EIS tax relief schemes are designed to incentivize equity investments, but they are incompatible with debt instruments. By using an ASA, founders protect the investor's ability to claim up to 50% tax relief on their investment.
Like its US cousin, the SAFE Note, an ASA typically includes commercial terms to protect the investor's future valuation, such as a Valuation Cap and a Discount.
Key Takeaway: An ASA is the most common way to take money from UK angel investors because it keeps the process fast, avoids setting a messy valuation early on, and guarantees the essential SEIS/EIS tax benefits.
