What is the difference between an ASA and a YC SAFE?
A YC SAFE (Simple Agreement for Future Equity) is a US instrument created by Y Combinator. An ASA is the UK equivalent. Both allow investment before a priced round without creating debt. The main differences are jurisdictional: an ASA is built for UK company law and can qualify for SEIS and EIS relief, while a SAFE follows US legal conventions.
What happens if the qualifying round does not take place before the long-stop date?
The outcome depends on the terms in your agreement. For an ASA, shares may be issued at a pre-agreed valuation. For a convertible loan note, the investor may be entitled to repayment of the loan plus accrued interest. Agree these fallback terms clearly at the outset.
Can investors claim SEIS relief on a convertible loan note?
SEIS and EIS relief applies to share subscriptions, not loans. Because a CLN is classified as debt until conversion, tax relief typically only applies after the loan converts into shares. The timing and structure of the conversion must meet HMRC conditions.
How does the discount rate work in an advance subscription agreement?
The discount gives the early investor a lower share price than new investors pay in the qualifying round. For example, if new investors pay £1 per share and the ASA includes a 20% discount, the ASA investor converts at £0.80 per share.
Can a non-resident founder use an ASA to raise from UK investors?
Yes. Non-resident founders can use an ASA to accept investment from UK-based angels. The investors may still be eligible for SEIS or EIS relief, provided the company meets the relevant scheme requirements.
What is a valuation cap and why does it matter?
A valuation cap sets a ceiling on the company valuation used when the investment converts into shares. If the company is valued above the cap at the next round, the early investor's shares convert at the capped valuation, resulting in a larger equity stake.
.webp)
