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 2 parties      Subscription Amount      Reverse vesting     Major investor rights

What is an advanced subscription agreement?

An advanced subscription agreement is a type of investment agreement used by startups or early-stage companies to raise capital from investors. Unlike traditional equity financing, where investors receive shares of the company’s stock immediately upon investment, an advanced subscription agreement allows investors to commit funds upfront in exchange for the right to receive shares at a later date, typically upon the occurrence of a specified trigger event, such as a future funding round or an exit event.

Advanced subscription agreements are often used in jurisdictions where traditional convertible debt instruments may not be suitable or permissible, offering flexibility for startups and investors while simplifying the fundraising process. However, they also involve certain risks and complexities, so it’s important for both parties to carefully review and negotiate the terms of the agreement with the guidance of legal and financial advisors.

Tips

• Understand Your Needs: Before drafting the agreement, clearly understand your company’s financing needs and objectives. Determine how much capital you aim to raise, the valuation cap, and the discount rate you’re willing to offer to investors.
• Be Transparent: Clearly disclose all terms and conditions to potential investors. Transparency builds trust and reduces the likelihood of misunderstandings or disputes later on.
• Provide Context: Include a clear explanation of the purpose and structure of the advanced subscription agreement. Help investors understand how it differs from traditional equity financing and the potential benefits it offers.