What terms should you select and what are their implications? Find out below
The SeedFAST is SeedLegals’ version of an Advance Subscription Agreement (ASA). We have ensured that our SeedFAST is built in the most founder-friendly way possible whilst also using market standard terms that are S/EIS compliant. With a SeedFAST you can take in funds from investors today, in exchange for shares in the future upon conversion.
Are you doing more than one SeedFAST at this time?
This question is being asked as it will allow the platform to automatically generate a Board and Shareholder Resolution that will approve the total amount being invested via SeedFASTs.
As a result, this means you only need to create and sign these Resolutions once, rather than having to do it separately for each investor. For example, in the screenshot above, a Board and Shareholder resolution will be created to approve the investment total of up to £250,000 via multiple SeedFASTs.
Fixed vs Variable Valuation?
The valuation is one of the most important aspects of a SeedFAST as it determines how much equity your investor will receive. This is because we get the price per share at conversion by taking the valuation and dividing it by the fully-diluted total of shares (shares + option pool) in your company before the conversion.
The conversion can either be effected by (i) conversion within a funding round, where the SeedFAST investor gets their shares alongside direct investors within that round or, (ii) via our handy Instant Conversion product, which is designed to only issue shares to investors with convertibles, such as SeedFASTs.
Choosing a fixed valuation means that no matter what you choose to value your company in the future, for example at a future funding round, the SeedFAST will convert at this fixed valuation. In the screenshot above, the valuation is fixed at £2,000,000. This means that if the conversion of this SeedFAST was to happen in a funding round where the valuation was set at £2,500,000, this particular SeedFAST would still convert at £2,000,000.
On the other hand, a variable valuation means that you do not have to specify a valuation now and the SeedFAST will convert at whatever the valuation is in the next funding round. Using the same example as above, this would mean that the SeedFAST would convert at the £2,500,000 valuation.
Would you like to offer a discount to your investor?
One of the Key Terms allows you to discount the price per share for the investor. This incentivises an investor to put money in without being issued shares immediately. A typical discount we see is 10-20%, depending on the proximity of the funding round. The longer the wait for conversion, the higher the discount tends to be.
The discount is applied to the valuation. For example, let’s say you were converting SeedFASTs within a round with a valuation of £2,500,000 but there was a discount of 25%, this would mean that the SeedFAST would actually convert at a valuation of £1,875,000 by virtue of the discount.
Do you want to put on a Cap on the valuation at which the SeedFAST will convert?
Placing a cap on the valuation will prevent the SeedFAST from converting at any valuation higher than this cap. For example, the screenshot above shows a cap of £2,000,000, meaning that if the SeedFAST was converting within a funding round with a valuation of £1,900,000, this would be the valuation that the SeedFAST would convert at because it is under the cap. However, if the funding round had a valuation of £2,500,000, the SeedFAST would remain converting at a valuation capped at £2,000,000.
If there is no funding round, what valuation will the SeedFAST convert at?
If you need to convert your SeedFASTs and you want to do it via Instant Conversion, whatever you insert here will be the valuation that is used. This is sometimes referred to as the ‘Longstop Valuation’ or low valuation.
If you have already done a funding round and want your SeedFAST investors to get exactly the same price per share as the funding round, just put £0 in this box.
What amount of investment constitutes a ‘Bona Fide Funding Round’?
This is asking you to set a minimum raise amount that constitutes a funding round. This can include the SeedFAST raises or exclude. We would recommend that you exclude SeedFAST raises from this figure so you are not limited in terms of how much investment you take in via SeedFASTs. However, if you've previously issued SeedFASTs using the ‘Including’ option, then we suggest you continue with that so the same trigger event applies to all outstanding SeedFASTs.
What share class will the SeedFAST convert into?
This section allows you to either specify a particular share class to give your investors or just give them whatever the most favourable share class is at the time of conversion.
What should I set as my longstop date?
This is the date by which your SeedFAST must convert. HMRC rules state that the maximum longstop date is 6 months after the signing of the SeedFAST Agreement. Therefore, if you’re planning on issuing S/EIS shares, please select the first option as per the screenshot above.
Add in specific wording?
Unless your investor requires specific terms, please select ‘None’ here.
Will you provide warranties that the company own its IP, there is no judgment against the company, etc?
This is a set of promises to your investor that your company owns its IP, and is not in ‘legal trouble’ etc. If your investor hasn’t asked for this, it is not necessary.
Any other questions?
Please reach out to the Agile Funding Team by clicking the chat bubble in the bottom right.