Your handy guide to agile fundraising...
What is SeedFAST?
A SeedFAST is the SeedLegals version of an Advanced Subscription Agreement (ASA). It is a quick and inexpensive way to raise funds from investors in a S/EIS compliant way without having to do a full round, allowing the company to convert the investment into shares at a future date, such as their next funding round.
What is the difference between SeedFAST and a YC SAFE?
SeedFASTs are the UK equivalent to SAFEs, which are a common way for US companies to raise investment ahead of a future round.
SAFEs are designed for US law, whereas the SeedFAST is a carefully worded, easy to understand, document designed for UK law. Crucially, SeedFASTs are compliant with SEIS and EIS legislation.
What is the difference between SeedFAST and a Funding Round?
A funding round is the process where multiple investors commit to invest in the company based on a set valuation.
Each investor is dependent on one another, which can result in scenarios where one investor’s failure to sign the documents can delay the round from closing. Additionally, rounds take much longer to negotiate, due to the complexity of the terms that need to be decided. In some cases, this is a good thing, such as when you want to change important documents like your Articles of Association, or if you want to create a Shareholders Agreement.
The goal of a SeedFAST is to remove that complexity and make it faster and easier for you to raise investment so you can grow your business. SeedFASTs allow you to raise funds ahead of a funding round. i.e. you can take in the investment but then give away the shares at a later date. This means you do not have decide a valuation now.
Unlike a funding round, a SeedFAST is an agreement between the company and one investor, so it's far quicker to execute the process and take in the investment quickly.
What is the difference between a SeedFAST and a Convertible Loan Note (CLN)?
A CLN allows works similarly to a SeedFAST, as the funds can convert into shares at a later date. However, a CLN can also be paid back in cash instead of issuing equity. Further, unlike within a SeedFAST, interest is sometimes payable by the company to the loan holder.
Importantly, a CLN not eligible under the S/EIS scheme due to it being a loan, making SeedFASTs a more popular investment vehicle in the UK.
For those cases where an investor isn’t looking for SEIS/EIS but does want interest or a return of capital, we also offer a SeedNOTE, our version of a convertible loan note.
Is SeedFAST S/EIS compatible?.
In short, yes! As long as you convert the SeedFAST investor to equity within 6 months of them sending over the funds, as per HMRC guidelines. This means that you must insert a longstop date of no more than 6 months from when the SeedFAST is fully signed. The longstop date acts as a deadline as to when the SeedFAST must convert.
4 important factors to consider before you raise with a SeedFAST
Here’s a list of questions we recommend you think about to get ready to fundraise using SeedFASTs:
Can you set a realistic valuation for your company at this stage?
An important advantage of the SeedFAST is the ability to select a ‘variable valuation’. This allows you to convert the SeedFAST at whatever valuation you decide in your next funding round, or sooner at a 'longstop valuation'.
You will need to provide some form of certainty that your investors will get their shares before the longstop date if you don’t do a funding round before then. In this case, the investor will convert at the longstop valuation. Therefore, it’s important to decide on a longstop valuation that reflects reality, which will in most cases be lower than the valuation of a priced round.
How much of your company’s equity do you plan to give away?
Similarly to a priced round, you need to think about how much of your company are you willing to exchange for investment. It can be tricky to know how much equity are you giving away with SeedFAST, since you’re not actually giving away shares at this stage.
However, it’s important that you at least estimate how much your investors would get as well as how much your shareholding will be diluted. Here’s a SeedFAST equity dilution calculator that will help you with these estimates.
How much money can you raise for your next funding round?
Within the key terms of your SeedFAST you will decide the amount of funds that need to be raised to ‘trigger’ the conversion of the SeedFAST. It might be challenging to determine exactly what your next raise will be at this stage so putting down an achievable ballpark figure is advised here.
How will you track your SeedFAST investments?
A common mistake many early-stage founders make is neglecting to properly record their outstanding debt. Each SeedFAST can have a different valuation cap or conversion discount, and you really need to keep track of these details, otherwise, you are risking not fulfilling S/EIS requirements for your investors or even overdiluting your ownership more than you planned to.
SeedLegals makes staying on top of your SeedFASTs a breeze! The platform will automatically track all of your investments and longstop dates and our Agile Funding Team will reach out to you in advance of your conversion date to help you out with your conversion as part of a Qualifying Round or Instant Conversion.
Advantages and Disadvantages of fundraising with SeedFASTs
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Advantages of raising money with SeedFAST
Disadvantages of raising money with SeedFAST
Executing a SeedFAST is faster than doing a funding round. Accessing funds quickly without getting bogged down by deciding the key terms and valuation associated with a funding round allows you to reach important milestones faster.
Some investors are unfamiliar with this investment vehicle and might find it uncomfortable to not be promised a particular equity %.
They’re appealing to investors. It is common to offer a discount to SeedFAST investors in reward for them putting money into your business ahead of a funding round.
You cannot create a shareholders agreement as part of a SeedFAST. In many ways this speeds up the process but if you require one, doing a funding round is recommended.
They have no interest rates, unlike CLNs. And are S/EIS compatible!