SeedFAST is a carefully worded, easy to understand document which complies with SEIS and EIS legislation and allows companies to get investment ahead of an upcoming funding round.
Technically, a SeedFAST is an advanced subscription agreement ("ASA") that allows investors to subscribe for shares in the next funding round, in exchange for their giving you money now.
Background to Advanced Subscription Agreements
Until recently, convertible notes were the only way in which investors advanced cash to startups without having to close a funding round. There are a number of advantages to convertible notes over a funding round: it’s quick and document-light, and while it sets an expectation of the next round valuation, you aren’t tied into that valuation at this stage.
But, convertible notes aren't SEIS/EIS compatible (they fail the SEIS/EIS test because the investor can get their money back, it’s effectively a loan) and so they haven't proven popular in the UK where early-stage funding rounds are heavily fuelled by SEIS and EIS investments.
Hence the creation of the ASA, on which our SeedFAST agreement is based.
SeedFAST includes additional features over an advanced subscription agreement, and integrates with your captable and upcoming round, and includes the shareholder resolution and other necessary documents. SeedFASTs can be shared with your investors and signed online on the SeedLegals platform, so you can complete your investments quickly
How it Works
Investors give you money now, which will convert into shares at a valuation to be determined in your next funding round. The SeedFAST investors are usually given a 10% to 20% discount on the next round share price compared to new investors in the round, to compensate them for their advance investment.
When can my investor get their SEIS/EIS tax relief?
When you do a funding round, the investor sends you their money and gets their shares within a few days, so it's clear and unambiguous which date and tax year applies to their SEIS/EIS investment.
But, what happens in the case of an SEIS/EIS investment made via a SeedFAST, where the investment may only convert into shares months later after the next funding round - which data and tax year is the investment deemed to have been made in then?
The date that an investor's SEIS/EIS investment is deemed to have been made is always the day that they were issued their shares (it's important that you only issue them their shares after you've received their money, otherwise their investment could be deemed to be loan, and they won't get their SEIS/EIS).
Using the example above, the tax year in which the SEIS/EIS benefit is given is the tax year when the funding round took place, not the tax year in which the SeedFAST investment was made.
At this point you're thinking... oh, that's bad, it means the investor does a SeedFAST with me now, and I don't do a new funding round (when the SeedFAST will convert into shares) until sometime in the next tax year, my investor won't be able to claim SEIS/EIS for this tax year, which is going to make them a lot less likely to invest.
While that's true - they can only file their SEIS/EIS claim in the tax year in which their shares were granted - the good news is that HMRC allows them to backdate their claim to the previous tax year, details here.
So, you can assure your investors that if they make an investment in your company via a SeedFAST today, even if that SeedFAST only converts into shares in the next tax year, they'll be able to retrospectively claim an SEIS/EIS tax deduction then, for this tax year.
We're here to help
SeedFAST agreements are designed to be quick and simple so anyone can create their agreement at any time. But be sure to check the questions and tutorials carefully, and hit the chat button for any queries - we're here to help. Our team of legal and funding experts will review your agreement once it's ready for your investors to sign.
Here is an article on how to choose the right deal terms for your SeedFAST.