SeedLegals launches SeedFAST – an SEIS-compatible Deferred Subscription Agreement
SeedLegals, the London-based legal and funding automation platform have launched SeedFAST, a Deferred Subscription Agreement which brings the benefits of the traditional US convertible note, combined with the advantages of SEIS and EIS compatibility for investors.
Convertible notes are the dominant instrument for seed stage financings in the US but have have not caught on in the UK predominantly due to their incompatibility with SEIS and EIS tax relief. However, unlike traditional convertible notes, investors using the new SeedFAST agreement are able to claim tax relief following their investment, bringing the same ease, speed and convenience enjoyed by the US ecosystem, and opening up a new, simpler path for early stage financings in the UK.
How it works
Similar to a convertible note, startups can raise funding from investors ahead of a funding round, which will convert into shares at the valuation set at the next round.
Investors are usually given a discount compared to investors in the next round to compensate them for their advance investment.
Startups and their investors don’t need to have decided on a company valuation at the time the note is issued, which in turn means they don’t need to decide how much percentage ownership will be exchanged – which can be notoriously tricky in a company’s earliest stages.
For example, if a startup is merely two people and an idea, how much equity should an investor receive for a £100k investment? 10%? 25%? 50%?
Additionally, the investment is received faster, and the legal paperwork completed in less than 10 minutes meaning far less of the investment is spent on legal admin compared with full funding rounds which have a fixed close date, set valuation and long-form legals.