Advance Subscription Agreement – Percentage Discount

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This document is an advance subscription agreement for use where the conversion price at which the advance subscription amount will convert into shares will be calculated as a percentage discount to the price at which shares are issued in the qualified investment round.

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 Advance Subscription Agreement Percentage Discount

About this document

This document is an advance subscription agreement for use where the conversion price at which the advance subscription amount will convert into shares will be calculated as a percentage discount to the price at which shares are issued in the qualified investment round.

The agreed discount is usually between 10-20% but will depend on the discussions between the company and the ASA investors.

Prior to entering into this ASA, the parties will need to consider and agree:

  • discount rate: the discounted price per share (expressed as a percentage) at which the ASA investor will receive shares in the qualified financing round
  • default valuation: the default valuation of the company which will be used to calculate the conversion price of the advance subscription in circumstances where conversion occurs on the agreed longstop date or the company’s insolvency
  • longstop date: the longstop date on which (and in the absence of a prior qualifying financing round) the ASA will automatically convert into shares
  • qualified financing round: the minimum amount of funding which the company must raise before that funding round will count as the qualified financing round under the ASA which results in the conversion of the advance subscription into shares
  • subscription amount: the amount of the investor’s advance subscription 

Document features

Features include:

  • advance subscription terms and payment
  • conversion on defined events of a qualifying financing round, the sale of the company or on a longstop date
  • conversion price on a qualified financing round to be at an agreed percentage discount to the qualified financing round share price
  • warranties regarding the investor’s compliance with Financial Services and Markets Act 2000 regime regarding financial promotions 

paperrockdocs Advance Subscription agreement - Percentage DiscountExplanatory guidance

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Background

Advance Subscription Agreement for investment in a private limited company with the conversion price based on a percentage discount to the qualified financing round price

What is an Advance Subscription Agreement?

An Advance Subscription Agreement is a way in which a company can raise investment quickly prior to an anticipated investment round.

Under an advance subscription agreement (ASA):

  • an investor provides investment funding to the company in the form of an advance subscription for shares
  • the advance subscription will convert into shares in the company in the future on the occurrence of the company’s next funding round (or earlier in certain circumstances)
  • the conversion price will be based on the price per share of the company’s next investment round.  Depending on the negotiations between the company and the ASA investors, the conversion price could be at an agreed discount to the investment round price and also potentially subject to a cap on the investment round valuation of the company
  • as an alternative, the conversion price for an ASA can be an agreed fixed amount, especially where the company is about to conclude an investment round at a known price per share but requires funding for the period prior to the conclusion of the investment round

For detailed discussion regarding the purpose of advance subscription agreements and their benefits and disadvantages for investors and the company, see our category page.  

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