Startup Equity Finance

The Agreement of Subscription against Advance Payment (ASAP) has been developed as alternative equity financing instrument under Dutch law for the American Simple Agreement for Future Equity (Safe), a model participation agreement developed by YCombinator.

Application of the Safe model raises the question of whether the instrument in the Netherlands qualifies as debt or equity based on the agreed terms. The directors of the start-up and the appointed auditor should conform to the answer to that question when preparing the financial statements.

If the Safe including all necessary adjustments required in order to work under Dutch law would continue to qualify as debt, an alternative equity financing instrument is needed which meets the objectives of both the investor and the start-up. In order to facilitate startups and investors to effectively document an equity financing instrument, Fieldfisher has introduced the ASAP.

By entering into the ASAP, the investor subscribes against a non-refundable advance payment for a certain number of shares in the capital of the company. The company issues the shares immediately prior to the earlier of the lapse of any maturity date, completion of a future financing round or an exit. The ASAP also entitles the investor to the right to receive a share of realized profits pro rata his investment. The ASAP enables a time and cost-efficient standardized investment process for investor and company, whilst ensuring that the advanced payment for the company qualifies as equity rather than debt.

Under Dutch law, the ASAP qualifies as equity if the ASAP fully meets certain criteria and its classification as equity is permitted under the Dutch Accountancy Directives (Richtlijnen voor de Jaarverslaggeving, RJ 240 and RJ 290).

In order to be able to qualify as equity, the ASAP meets the following criteria:

It provides a right to a fixed number of ASAP shares (which is the case when the ASAP is based on a fixed valuation);

It gives the ASAP investor the right to demand payment of a profit distribution from the start-up, if the start-up has realised profits over a financial year, the general meeting of the company has decided to distribute realised profits to the shareholders and the company has paid out these profits;

It does not contain an obligation to repay the investment amount;

A liquidity event or an insolvency event will also lead to the issuance of the ASAP shares, thus meeting the subordination requirement and the participation requirement.

It explicitly considers the investment amount as a paid advance on the issue price that the investor pays to the start-up for the acquisition of the shares that are issued on the occasion of the new financing round or at an insolvency event.

The investment amount, once received by the company, irrevocably forms part of its guarantee capital.

The number of shares to be issued against payment of a subscription price (equal to the ASAP funds provided, and based on the Post-Issue Capitalization Base) is calculated as follows:

Upon the issue of the ASAP Shares, the ASAP investors would start diluting their shareholding in respect of new shares and options already reserved for issue at a future financing round, and for shares and options issued in future to employees.

The following example will further clarify how the ASAP works in practice.