What is a priced round vs a convertible round?
By SuLe · Updated 9 May 2026
A priced round sets your company's valuation now and issues shares immediately, using a full set of investment documents; a convertible round takes the money now but defers the valuation, using a short instrument — usually an ASA or convertible loan note — that converts into shares at your next priced round. Convertible rounds are quicker to paper; priced rounds give everyone certainty about who owns what.
Key facts
- A priced round typically means a subscription (investment) agreement, a shareholders' agreement and new articles of association.
- A convertible round runs on one short instrument: an advance subscription agreement (ASA) or a convertible loan note.
- A convertible loan note is debt and can never qualify for SEIS or EIS; an ASA can, if it meets HMRC's conditions.
- Convertible discounts typically run 10–20%; note interest commonly accrues at around 5–10%, rolled up rather than paid.
- Every allotment — at completion or at conversion — must be reported on form SH01 within one month (Companies Act 2006).
What makes a round "priced"?
A priced round is one where you and the investors agree the company's valuation now, fix a price per share, and issue the shares at completion. Everyone knows on signing day exactly what percentage they hold.
The paperwork reflects the commitment. A priced round typically takes a subscription (investment) agreement, a shareholders' agreement and new articles of association, supported by board and shareholder resolutions.
Two mechanics to note. The term sheet that starts the process is generally not binding on the commercial terms — it is "subject to contract" — although exclusivity, confidentiality and costs clauses are usually expressly binding. And after allotment, form SH01 must reach Companies House within one month under the Companies Act 2006.
How does a convertible round work?
A convertible round takes investment now on a short instrument and defers the valuation question to your next priced round. In the UK that instrument is usually an advance subscription agreement (ASA) — an irrevocable, non-refundable, interest-free advance payment for shares — or a convertible loan note, which is debt: repayable, usually interest-bearing, with a maturity date.
The investor's reward for going early is pricing protection at conversion: a discount on the next round's share price (typically 10–20%), sometimes a valuation cap, and on loan notes rolled-up interest commonly around 5–10%.
The instrument also defines a "qualifying round" — usually a minimum raise, somewhere in the £250,000–£1m range — plus a backstop: a longstop date for an ASA, a maturity date for a note.
Which route is faster and cheaper?
A convertible round is usually the lighter lift: one short document, no new articles, no shareholders' agreement to negotiate, so signatures come quicker and legal costs run lower. That is much of its appeal for banking committed angels early.
But deferral is not deletion. The valuation conversation, the full document set and the governance negotiation all still arrive at the next priced round — with your convertible holders converting on top of the new money.
Stacked convertibles are the hidden cost. Several instruments on different discounts, caps and fallback valuations make the eventual conversion maths messy, and founders are routinely surprised by the combined dilution. If you raise this way, keep the terms aligned.
How do SEIS and EIS treat the two routes?
In a priced round, the new shares can qualify directly — worth 50% of the amount invested under SEIS and 30% under EIS, provided company and investor meet the schemes' conditions. Relief arises at the share issue, which is completion day.
In a convertible round, the instrument decides everything. An ASA can preserve relief if it meets HMRC's conditions: non-refundable, interest-free, incapable of variation, converting only into full-risk ordinary shares, with a longstop no more than six months from signing. A convertible loan note is debt, and debt can never qualify.
Timing differs too. ASA investors get relief only when shares are issued at conversion, not when they pay — a gap that matters to anyone planning their claim around a particular tax year.
When should a founder choose each?
It depends on the state of your raise, and pretending otherwise helps nobody. A convertible suits committed cheques ahead of a round: it banks money quickly while a lead investor — and therefore a price — does not yet exist.
A priced round suits the moment terms can genuinely be set: a lead willing to negotiate valuation and governance, and enough money involved to justify the heavier documents.
The two are stages more than rivals. Convertibles signed early are designed to convert into the priced round that follows, so the real question is usually "convertible now, priced round when?" rather than either/or.
| Priced round | Convertible round | |
|---|---|---|
| Valuation | Agreed now — price per share fixed | Deferred — discount, cap and fallback price it later |
| Core documents | Subscription agreement + shareholders' agreement + new articles | Short ASA or convertible loan note |
| Shares issued | At completion | At conversion (next round, longstop or maturity) |
| SEIS/EIS | Shares can qualify if scheme conditions met | ASA can qualify (HMRC conditions); loan note never |
| Investor protections | Negotiated in full now | Minimal until conversion |
| Companies House | SH01 within one month of allotment | SH01 within one month of the conversion allotment |
Worked example
Nadia, solo founder of a healthtech SaaS company, has a lead investor ready to set terms, so she runs a priced round: £400,000 at a £1.6m pre-money valuation. With 1,600,000 existing shares, that is £1.00 per share, and the round investors receive 400,000 new shares at completion.
Back in January, two angels had wanted in before any lead existed, so she signed £75,000 of ASAs at a 15% discount in under a week. Those convert alongside the round at £0.85 per share — roughly 88,200 shares. After completion and conversion there are about 2,088,000 shares in issue, leaving Nadia with roughly 77%. The subscription agreement, refreshed shareholders' agreement, new articles and SH01 all land in the same completion bundle.
Where founders go wrong
Running a convertible to dodge the valuation conversation
— it is deferred, not avoided. Every postponed question lands at the next round, with your convertible holders converting on top.Promising SEIS on a convertible loan note
— notes are debt and never qualify. If relief matters, structure an ASA that meets HMRC's conditions.Treating the term sheet as binding everywhere (or nowhere)
— commercial terms are usually "subject to contract", but exclusivity and costs clauses usually do bind. Read it both ways before signing.Skipping completion mechanics
— resolutions, register updates and the SH01 within one month apply to a priced round and to every later conversion alike.
Related questions
Do I need a valuation for a convertible round?
No — deferring the valuation is the point. The instrument prices the conversion later using a discount (typically 10–20%), sometimes a valuation cap, and — for ASAs — a fallback valuation for the longstop. You still negotiate those numbers, so model the dilution they imply. [More: What is a valuation cap and how does it work?]
Which documents does a priced round need?
Typically a subscription (investment) agreement, a shareholders' agreement and new articles of association, supported by board and shareholder resolutions, then an SH01 filed within one month of allotment. A convertible round usually needs only the short ASA or note itself until conversion. [More: What is a subscription (investment) agreement?]
Is a convertible round cheaper than a priced round?
Usually, because there is less to draft and negotiate — that is much of its appeal for small early raises. But the saving is a postponement: the full priced-round document set still arrives later, with your convertible holders converting on top of it.
Can SEIS or EIS apply in both types of round?
Yes — but differently. Shares issued in a priced round can qualify directly if the schemes' conditions are met. In a convertible round, only an ASA meeting HMRC's conditions preserves relief, arising when shares are issued at conversion; a loan note never qualifies. [More: Do ASAs and convertible notes qualify for SEIS/EIS?]
A priced round's documents run to dozens of pages and a convertible's to a handful — but both fix terms you will live with for years, and the cheap-looking route can carry the expensive surprise. A SuLe solicitor can pressure-test the structure before you commit to either. Book a free term sheet review and know what you are really signing.
Keep reading: What is a term sheet — and is it legally binding? · What should a UK seed-stage term sheet include? · What is an advance subscription agreement (ASA)? · ASA vs convertible loan note — what's the difference? · What documents do I need to close a seed round in the UK? · Pre-money vs post-money valuation — what's the difference?
Primary sources: Companies Act 2006 · HMRC — Seed Enterprise Investment Scheme
