What is an advance subscription agreement (ASA)?
By SuLe · Updated 23 June 2026
An advance subscription agreement (ASA) is a contract under which an investor pays your startup money now, in return for shares that will be issued later — normally at your next funding round, at a discount to the price new investors pay. It is not a loan: the money is non-refundable and earns no interest, which is precisely what keeps it compatible with SEIS and EIS.
Key facts
- An ASA converts into shares at your next qualifying funding round, or on a "longstop date" if no round happens first.
- To protect SEIS/EIS eligibility, HMRC expects the longstop date to be no more than six months from signing.
- The payment must be non-refundable and interest-free — a refund clause turns it into a loan and kills the tax relief.
- Investors typically receive a 10–20% discount on the next round's share price.
- SEIS/EIS relief runs from the date shares are issued, not the date the investor pays.
How does an ASA work?
The investor signs the ASA and transfers the money straight away, and your company can use it immediately. There is no valuation negotiation at this point — that question is deferred to your next round.
When you close your next qualifying funding round, the ASA converts. The investor receives the same class of shares as the incoming investors, but at a price per share reduced by the agreed discount.
If no qualifying round happens before the longstop date, the ASA converts anyway, at a fallback valuation written into the agreement. Either way, the investor always ends up with shares — never their money back.
Why do UK startups use ASAs instead of SAFEs or loans?
The short answer is SEIS and EIS. A convertible loan note is debt, and debt can never qualify for SEIS or EIS — the schemes require the investor's money to be genuinely at risk as equity. An ASA keeps the money at risk, so the relief survives.
A SAFE is the US equivalent, and while it can be adapted for the UK, HMRC's published guidance is written around the ASA structure. Most UK angels investing pre-seed will expect an ASA for exactly this reason.
ASAs are also fast. With no valuation to negotiate and only a short agreement to sign, founders regularly use them to bank committed angels before a priced round is ready.
What conditions must an ASA meet for SEIS or EIS?
HMRC's advance assurance guidance sets out the shape an ASA must take to qualify. The payment must be irrevocable and non-refundable, the agreement must not carry interest, and it must not be capable of being varied, cancelled or assigned.
The ASA must convert only into full-risk ordinary shares, and the longstop date should be no more than six months from the date of the agreement. Breach any of these and your investors can lose relief worth 50% (SEIS) or 30% (EIS) of what they invested.
The relief itself arises when the shares are issued at conversion. Your investor cannot claim anything in the window between paying and converting, which is another reason a short longstop is investor-friendly.
What happens if there's no round before the longstop date?
The ASA converts at the fallback valuation — sometimes called the floor or default valuation — agreed when it was signed. Founders sometimes treat this number as a formality and set it low to get the deal done.
That is a mistake worth avoiding. If the round slips, a carelessly low fallback valuation can hand over substantially more equity than you modelled. Run the dilution maths at the fallback price before signing, not after.
What should founders negotiate in an ASA?
Four terms do most of the work. The discount (typically 10–20%); the fallback valuation; the definition of a "qualifying round", usually a minimum amount raised so a small top-up cannot trigger conversion; and the longstop date, which for SEIS/EIS should stay within six months.
If you sign ASAs with several investors, keep the terms identical wherever possible. Stacked ASAs with different discounts and fallback valuations create cap table friction that surfaces at exactly the wrong moment — your next round.
| ASA | SAFE | Convertible loan note | |
|---|---|---|---|
| Repayable? | No | No | Yes — it is debt |
| Interest | None | None | Usually accrues |
| SEIS/EIS eligible | Yes, if HMRC's conditions are met | Rarely — needs restructuring for UK use | No — debt does not qualify |
| Valuation agreed now | No | No | No |
| Converts | Next qualifying round, or longstop (≤6 months for SEIS/EIS) | Next priced round — no longstop | Round, maturity date or repayment |
| Home market | UK | US | Used in both |
Worked example
Priya and Dan, co-founders of a B2B analytics startup, sign a £150,000 ASA with an angel in March: 15% discount, £1.2m fallback valuation, six-month longstop. In July they close a £500,000 seed round at £1.00 per share — inside the longstop, so the fallback valuation never comes into play.
The ASA converts at £0.85 per share, so the angel receives around 176,000 shares — against the 150,000 a new investor gets for the same money. The company allots the shares, files the SH01 at Companies House within one month of allotment, and the angel's SEIS claim runs from the July issue date, not the March payment.
Where founders go wrong
Agreeing a longstop beyond six months
— it feels generous, and it quietly ends your investors' SEIS/EIS eligibility.Adding a refund clause "in case the round doesn't happen"
— that makes the ASA a loan, with the same result.Stacking ASAs on different terms
— mismatched discounts and fallbacks multiply into a messy conversion at the round.Treating conversion as automatic
— the shares still have to be formally allotted, with the SH01 filed within one month.
Related questions
Is an ASA a loan?
No. The money is non-refundable and earns no interest, so it is treated as an advance payment for shares rather than debt. That distinction is what keeps the investment "at risk" and therefore capable of qualifying for SEIS and EIS.
Do ASAs qualify for SEIS and EIS?
Yes, provided the agreement meets HMRC's conditions: the payment is irrevocable and non-refundable, no interest is paid, the agreement cannot be varied or cancelled, it converts only into full-risk ordinary shares, and the longstop date is no more than six months from signing. [More: Do ASAs and convertible notes qualify for SEIS/EIS?]
What discount do ASA investors typically get?
Most UK ASAs give the investor a discount of around 10–20% on the share price paid by new investors at the next round. The discount compensates them for investing earlier, at higher risk, without a negotiated valuation.
What is a SeedFAST — is it different from an ASA?
A SeedFAST is a platform's branded template for an advance subscription agreement. Legally it is an ASA, so the same conversion mechanics and the same HMRC conditions for SEIS/EIS apply to it. [More: What is a SeedFAST and how does it compare to a standard ASA?]
When does my investor's SEIS or EIS relief start?
When the shares are actually issued at conversion — not when they transfer the money. If the investor pays in March and the ASA converts at your July round, their relief runs from the July share issue.
An ASA looks like a two-page shortcut — and one refund clause or a seven-month longstop can quietly void your investors' SEIS relief without anyone noticing until they try to claim. A SuLe solicitor can check your ASA or term sheet before you sign it. Book a free term sheet review and get a regulated startup lawyer's eyes on the terms.
Keep reading: ASA vs SAFE — which should UK startups use? · Why do ASAs have a six-month longstop date? · What is a valuation cap and how does it work? · ASA vs convertible loan note — what's the difference? · What is a term sheet — and is it legally binding? · What is a SeedFAST and how does it compare to a standard ASA?
Primary sources: HMRC — Seed Enterprise Investment Scheme · HMRC — advance assurance for venture capital schemes
