Investing in startups can be exciting but risky at times when not equipped with the right knowledge and skill set. To de-risk the possibility of losing your money when angel investing, it is crucial to be familiar with the financial instruments involved when investing. Traditionally angel investors invest in a startup and receive equity in return, however, there are other instruments angel investors can use to make their investment. One such instrument that is gaining popularity, especially in the UK, is the Advanced Subscription Agreement (ASA). In this article, we’ll break down what ASA is, why angel investors might choose it, how founders benefit from it, and what investors need to be cautious of when using this instrument.<\/p>\n\n\n\n
1. What is an ASA?<\/strong><\/p>\n\n\n\n ASAs serve as a form of convertible instrument, providing investors with the right to subscribe to shares in a future funding round, typically the next equity financing event. Similar to the Safe Agreement for Future Equity (SAFE note), popularised by the startup accelerator Y-Combinator in the US.<\/p>\n\n\n\n One big advantage ASAs have for founders and investors is that, unlike traditional equity investments, ASAs postpone the valuation discussion until a later round. This allows founders and investors to focus on building the business in its early stages without spending significant time negotiating the company’s value. Investors also often get a discount on the price per share they invest at as an incentive for investing before agreeing on a valuation, i.e. 10% discount on the next priced funding round.<\/p>\n\n\n\n 2. Why Would Angel Investors Use ASA?<\/strong><\/p>\n\n\n\n There are several reasons why angel investors would use ASAs. <\/p>\n\n\n\n 3. Why Would Founders Use ASA?<\/strong><\/p>\n\n\n\n There are several reasons why founders would use ASAs.\u00a0<\/p>\n\n\n\n To summarise for the founder there are very few downsides to use ASAs. But what about the angel investor? are there any downsides for investors?\u00a0<\/p>\n\n\n\n 4. What Do Angel Investors Need to Be Aware of When Investing in ASAs?<\/strong><\/p>\n\n\n\n One significant risk angel investors need to be aware of is that if angel investors invest in an ASA and a startup collapses before the investor\u2019s shares convert, there are no downside protections for the investor such as claiming SEIS\/ EIS tax relief. It is much harder for investors to get the money out of the startup compared to a priced round. <\/p>\n\n\n\n The main drawback to remember with ASAs is the period between when you invest in an ASA and before the ASA converts into shares is very uncertain and there is almost no protection for the investor during this period. This could result in an investment is a startup that fails to close its funding round and ultimately doesn\u2019t return your funds. However, in a priced round you are usually asked to transfer funds when the startup has enough funds confirmed to close its round.<\/p>\n\n\n\n Therefore before investing in an ASA, make sure you are aware of the downside you can face as an investor. <\/p>\n\n\n\n Conclusion<\/strong><\/p>\n\n\n\n ASAs offer a streamlined and flexible approach to early-stage fundraising, benefiting both angel investors and founders. However, careful consideration of the potential risks involving ASAs is crucial for investors to make informed decisions and maximise the success of their startup.<\/p>\n","protected":false},"excerpt":{"rendered":" Investing in startups can be exciting but risky at times when not equipped with the right knowledge and skill set. To de-risk the possibility of losing your money when angel investing, it is crucial to be familiar with the financial instruments involved when investing. Traditionally angel investors invest in a startup and receive equity in…<\/p>\n","protected":false},"author":8,"featured_media":85227,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_surecart_dashboard_logo_width":"180px","_surecart_dashboard_show_logo":true,"_surecart_dashboard_navigation_orders":true,"_surecart_dashboard_navigation_subscriptions":true,"_surecart_dashboard_navigation_downloads":true,"_surecart_dashboard_navigation_billing":true,"_surecart_dashboard_navigation_account":true,"footnotes":""},"categories":[10],"tags":[],"yoast_head":"\n\n
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