In this article, you will understand how BSA AIR (rapid investment agreement share purchase warrants) financing works. You will also see how this type of financing is advantageous for startups in the seed phase as well as for investors who take the risk of investing in the early stage.
BSA AIR is a funding method introduced in France in late 2013. The French gas pedal The Family and the law firm SB avocats are behind it. High-potential startups can raise funds quickly. They are not confronted with the cumbersome procedures of traditional fundraising. In return for the funds released, the mechanism of warrants (BSA AIR) gives investors the right to subscribe to a variable number of shares. The price will be determined according to a future event (often a fund raising).
The advantages of BSA AIR for startups are :
- The speed of the financing thanks to the postponement of the negotiation phases concerning the valuation, the shareholders’ agreement and all the formalities of the capital increase.
- The absence of immediate dilution of the shareholding.
- A saving of time and money. Indeed, the signature of the agreement can be done without going through law firms.
The advantages of the AIR BSA for the investors are :
- A discount of 10% to 30% on the share price.
- A higher capital gain in case of exit from the capital.
You will also see the 3 steps to issue warrants (BSA-AIR) which are
- Define the parameters of the agreement
- To draw up a contract of subscription for shares
- Sign the contract under private signature and receive the funds
Advimotion is a financial consulting firm that assists startups and SMEs in obtaining non-dilutive financing and equity fundraising. We also act as advisors in corporate divestiture transactions to best represent the interests of sellers.
We offer strategic consulting and outsourced CFO services to ensure the financial and operational monitoring of your business. Finally, we take care of the drafting of investor documentation : business plan, pitch deck, creation of reporting files and valuation calculations.
For more information, please contact us.
In early December 2013, Y Combinator realized that it is difficult to accurately measure the valuation of a startup at the beginning. Indeed, there is very little data. Thus, SAFE allows investors to fund an early stage startup by deferring the valuation part to a future fundraising round.
At the end of December 2013, French gas pedal The Family and law firm SB avocats created the BSA AIR tool – warrants by rapid investment agreement, which has been widely used in the French entrepreneurial ecosystem since then.
The principle of the BSA AIR
The BSA AIR allows startups to have access to quick financing by postponing the time-consuming negotiations around valuation, shareholder agreements and procedural formalities that take place during traditional fundraising.
The financing in BSA AIR takes place in 2 steps. First, the investors finance the startup’s activity in exchange of warrants. At this stage, the investors are legally qualified as “holders of securities giving access in a deferred way to the company capital”.
Then, after a classic fund raising, the investors will become “shareholders”.
The advantages of the BSA AIR for startups
The speed of financing
The BSA AIR allows startups in the seed phase to raise money quickly. The speed comes from several factors:
- The implementation of BSA AIR takes the form of a private agreement between investors and founders.
- The negotiation phases found in traditional fundraising (intervention of an auditor in charge of the verification of assets and liabilities, the long process of negotiating the valuation, the shareholders’ agreement and all the documentation that goes with it), have been deferred to the future fundraising.
- The investors’ money is immediately paid into the startup’s bank account, which allows it to improve its cash-flow. Thus, startups no longer have to wait between 6 and 9 months, or even longer for some of them, before receiving the funds.
- The speed of funding allows the startup to move forward in its development to improve its metrics and value for the next round of funding.
- The cash infusion can also be used as leverage to obtain a bank loan.
Saving time and money
- Startups save time by postponing negotiations (closing of the future shareholders’ agreement, dilution, capital increase formalities, holding of new shares by investors) until the next fundraising.
- It is also possible to save money by issuing warrants (BSA AIR) on legaltech sites to avoid legal fees.
The advantages of the warrants (BSA AIR) for the investors
The discount rate from 10% to 30%.
- In order to reward the risk-taking of financing startups at an early stage of development, the founders promise the investors to correct downwards the entry price in the capital at the next fund raising, i.e. to obtain a discount.
Thus, a non-IRA investor who has invested a ticket of €50,000 in a startup where the price per share in the context of the fundraising is set at €50 will get 1,000 shares. On the contrary, an AIR investor benefiting from a 30% discount will enter at a price per share of 35€ instead of 50€ which will allow him to obtain 1 428 shares.
- Having benefited from a discount, the AIR investor will benefit from a better capital gain when exiting the capital.
The course of an issue of warrants (BSA AIR)
The issuance of BSA AIR takes place in 3 steps.
- First of all, the investors and the founders meet to define the parameters of the agreement. Indeed, the stakeholders must agree on :
- The amount of the realized investment
- The discount rate
- The cap and floor valuations: These parameters frame the valuation of the startup by setting a minimum and maximum valuation range to frame the number of shares the investor will receive.
- The event or events that will activate the exercise of the AIR BSA. This event is often a fundraising in seed or series A.
- And finally, a deadline for the automatic conversion of the warrants (BSA AIR) into shares if no funds have been raised by then.
- Once the parameters of the agreement have been defined, the parties involved draw up a subscription agreement for the shares. This can be done on legaltech websites or with lawyers.
- Once the subscription contracts are signed under private signature, the entrepreneurs receive the funds directly into their startup’s bank account.
A way of financing for all startups ?
As many experts and entrepreneurs say, financing with AIR BSAs is quick and easy. However, this financing tool is only suitable for startups with a strong development potential. They will launch in the near future (1 to 2 years) in a fund raising. Also, before entering into the process of financing by warrants (BSA AIR), the founders must accept that the AIR investors dilute the capital more strongly than the future non-AIR investors.
Thus, warrant financing is a quick and simple tool. It completes a fund raising. Indeed, the financing by AIR BSA will give enough liquidity to the startup to succeed.
The BSA AIR is also advantageous for investors. They take a risk by investing in startups in seed stage. However, there is a discount. Therefore, there is a better return on investment in case of an exit.
Finally, in the current health crisis, AIR BSA can be an interesting option for growing startups.
If you want to continue reading us, you can find us on Medium.
Advimotion, your growth partner.