As startups look for alternative methods of fundraising, the use of ASAs (Advance Subscription Agreements) and SAFTs (Simple Agreements for Future Tokens) has become increasingly popular.
ASAs and SAFTs provide startups with flexible, quick funding options without immediate equity dilution or the need for complex valuations. They also allow investors to support early-stage companies with the potential for future returns once certain milestones are met. These instruments simplify the fundraising process, making it more accessible for startups to secure capital.
ASAs
ASAs are investment contracts that allow investors to provide upfront funding in exchange for the right to obtain equity in a company at a future date, typically during a subsequent funding round. In the FinTech space, ASAs have become an attractive method for startups to raise capital as they look to disrupt traditional financial services.
ASAs are very similar to SAFEs (Simple Agreements for Future Equity) and often the two terms are used interchangeably. The key difference is that SAFEs are a product of the American venture capital markets and therefore are more 'US-looking' documents. Essentially, an ASA is the UK version of a SAFE.
ASAs and SAFEs allow FinTech companies to raise capital quickly without the need for immediate valuation, which can be particularly advantageous for early-stage FinTech firms that are still developing their business models and market presence.
This flexibility enables founders to focus on growth and innovation without the immediate pressure of equity dilution or complex negotiations. Additionally, the straightforward nature of ASAs and SAFEs often results in lower legal costs and faster execution, making them an attractive option for FinTech firms looking to secure funding swiftly in a competitive market.
SAFTs
On the other hand, a FinTech firm involved in blockchain or cryptocurrency projects might consider using a SAFT to align with regulatory compliance while raising capital. SAFTs allow investors to provide funding to a project in exchange for the right to receive tokens at a future date, and are usually structured to defer token issuance until the network is operational, potentially reducing regulatory risks associated with token sales.
This approach allows FinTech firms to secure funding for project development while offering investors the opportunity to acquire tokens at an early stage, often with favourable terms, such as at a discount. By timing the token issuance to coincide with network functionality, firms can better position themselves in the market, potentially enhancing token value and investor returns.
This strategic alignment of funding and project milestones makes SAFTs a compelling choice for FinTech firms navigating the evolving landscape of digital assets.
Token warrants
Another option available to startups is token warrants, these are often used by blockchain and cryptocurrency projects. A token warrant functions as a promise that gives the holder the right, but not the obligation, to purchase a set number of digital tokens at a later date, at a price that is decided upfront.
There are three main types of tokens available to startups:
- Utility token – these tokens are the most common. They can provide access to the startup's products or services, acting as a form of digital currency within the startup's ecosystem.
- Governance token – these tokens can be used to give holders voting rights on decisions within the startup's products or services, acting as a form of digital currency within the startup's ecosystem.
- Equity token - these tokens are used to tokenise the equity in a UK company, giving holders certain economic rights.
Token warrants are different from SAFTs in that they are a right to purchase in the future, and so are the preferred route for investors as they do not require funds to be sent upfront.
ASAs, SAFEs and SAFTs offer startups flexible fundraising options outside of the traditional venture capital landscape, allowing them to secure capital without immediate equity dilution or complex valuations. Alongside token warrants, these investment tools provide innovative pathways for FinTech startups to align funding with growth milestones, navigate regulatory landscapes and attract investors.