A subscription agreement is a contract requiring an investor to invest in a particular company in exchange for certain promises on behalf of the company.
- Raising capital for your business
- Gauging investor interest in your company.
There are many ways that companies can raise capital before going to the lengths of publicly issuing shares of stock. In many cases, business owners want to gauge interest in their companies and attract early investors by a process known as subscription. Under a subscription arrangement, investors commit to fund a company before actually purchasing stock. Subscription agreements provide a framework for this pre-sale purchase.
Subscription agreements can be a part of a package business owners use when seeking private equity investments. Along with offer memoranda, private placement memoranda, and other instruments, business owners may be able to attract investors under more beneficial terms than they would see under a traditional sale of stock. Some companies actually raise more money than they initially intended through subscription agreements, meaning that they would have left money on the table if they had just issued their shares for sale at a fixed initial price.
Subscription agreements are also a helpful way to mitigate risk when raising capital. Because they include a promise from an investor to purchase equity when it comes up for sale, securing subscription agreements can be a helpful way to attract additional investors to your business.