BSA Air stands for "Bon de Souscription d'Actions - Accord d'Investissement Rapide".

It's a french early-stage investment mechanism derived from the share subscription warrant (BSA), but with a rapid investment agreement. It allows you to acquire a stake in the capital of a company on “advantageous” financial terms based on the valuation calculated only at the time of conversion (that means, in the future). It removes the need to negotiate a valuation for the company when the warrants are set up.

Seems pretty cool, right?

BSA Air was inspired by the North American practice of financing start-ups (SAFEs), and the equivalent in the UK (ASAs). From 2020 to 2022, we saw a lot of fundraising using BSA Air. However, since 2023, this trend has reversed.

BSA Air are generally a highly practical investment tool for early stage start-ups, whose initial fundraising has thus far been financed by friends, family and business angels. That said, this tool is much less attractive for more mature companies, because it is not designed for structuring financing rounds.

✅What are the benefits?

BSA Air have various advantages that make them desireable for investors:

  1. Investors can subscribe to shares at a preferential price compared to the price of the next round
  2. Investors can participate in the future growth of the company without having to determine a specific valuation in advance. This also entails a simpler process, as there is no obligation to draw up a Shareholders' Agreement (only at the time of the conversion).
  3. Issuing companies can obtain fast equity financing and avoid immediate dilution of existing shareholders along with the other cumbersome procedures associated with traditional equity transactions.

→ In practice, one of the biggest benefits of BSA Air is that the issuer receives the funds immediately into its account, while postponing the process of creating new shares.

To ensure that the investment proceeds smoothly and that the company valuation (which determines the eventual number of shares to be issued) does not serve as a stumbling block, the parties agree on a floor and a cap valuation for the eventual conversion. The final determination of valuation is typically made during a subsequent capital operation (often the next fundraising round), and serves as a guide post for the exercise of the BSA Air.

One important point to note is that the French Commercial Code requires the Air investor's position to be considered in all subsequent equity transactions, and the company cannot negotiate with other investors on terms that are more advantageous than those granted to the AIR investor. Although the investor is not a party to the Shareholders' Agreement, they do have a right of veto over any future equity transactions that could be disadvantageous to them.

Using BSA Air (Summary):

  • Companies can obtain the funding they need within a reduced timeframe, enabling them to grow and develop faster;
  • Investors can secure access to the company’s capital at a lower price than future investors in the next round, enabling them to double down if the company is on a good trajectory.

Tempting, isn't it?

⚠️ Nevertheless, some downsides

BSA Air could be (was?) a powerful tool, but it's important to be aware of its drawbacks.

For inexperienced investors, it may be difficult to understand. Also, investors who finance start-ups using BSA Air may worry about dilutive capital transactions in the future. To address this concern, including an additional accretive warrant can be tempting. However, it's worth noting that adding another warrant to the BSA Air may not always be the best option: it can make the investment structure more complex and less appealing to future investors. Ultimately, the goal is to find a financing solution that balances the needs of the company and the interests of all investors involved.

French investors should also note that BSA Air are not eligible for the PEA scheme (Plan Épargne Action, a french stock savings plan), nor are they eligible for the income tax reduction for subscriptions to the capital of SMEs (IR-PME scheme in France).

BSA Air investors should be conscious that they are taking more early-stage risk, and thus they should expect a commensurate discount for their future subscription in the ensuing funding round or capital event. This discount typically amounts to around 30% but can vary, and investors should carefully weigh this risk-return relationship.

You're not being compensated enough!

💡 What is the impact of BSA Air on the cap table?

If the capitalization table intends to reflect the share capital on a non-fully diluted basis, i.e. a capitalization table that reflects only the shares existing at the date, then the BSA Air should not appear in the capitalization table. This means, as we do not know the number of shares that will be issued, there should be no impact on the cap table.

However, it is possible to forecast the next fundraising and by extension the ensuing dilution.

→ If the cap table intends to reflect the capital on a fully-diluted basis, then the BSA Air should appear. More precisely, it is the number of shares that could be issued upon exercise of the warrant(s) that should appear in the fully-diluted version of the cap table. To do so, it will then be necessary to make an exercise assumption (for example, the assumption of exercise on the basis of the floor valuation in order to reflect the worst-case scenario).

💡 Can you conduct secondary transactions with BSA Air?

In theory, BSA Air can be sold. However, this tool is contractual and will depend on the terms of the contract that has been drawn up. In practice, and in most of contracts, BSA Air are not transferable, and thus there is not really a secondary market in BSA Air.

Thus, BSA Air are generally not liquid and they are not great mechanisms for secondary transactions. Moreover, because BSA Air are designed for extremely early-stage companies, they tend not to be relevant at the later stage when secondary transactions become more common.

Indeed, even with the practicality and velocity of BSA Air, there are many complexities to be considered. Thus, it may be more suitable to weight it against other tools.

For example, it could be worth considering Obligations Convertibles (OC, convertible bonds) or Obligations Remboursables en Actions (ORA, a bond redeemable with shares) which are semi-equity instruments that may include an interest rate. In contrast, BSA Air does not offer any remuneration for the money invested.

Other french equity investment vehicles also exist, such as the Action à Bon de Souscription d'Action (ABSA, share with a warrant), which entitles the holder to subscribe for new shares at a given price and over a given period, by means of a warrant issued at the time of the initial purchase. These instruments are significantly more liquid, are simpler than BSA Air, and are typically utilized over a longer arc of the company’s development.

→ Above all, it is important to keep in mind that stucturing a BSA Air financing operation can be a misguided idea if all aspects are not properly understood: without a detailed plan, there is the capacity to make the captable less legible, to not be exercisable if the conditions are not “in the money”, or to complicate negotiation of rights in future rounds with new (lead) investors who seek to subscribe.

It's a tough racket out there

Written by Emma Frankhauser