Continuous Agreement For Future Equity Template for England and Wales

A Continuous Agreement For Future Equity (CAFE) allows you to secure investment funding while deferring complex valuation negotiations and immediate equity issuance. Under England and Wales law, this instrument provides investors with future conversion rights into company shares, triggered by specific qualifying events such as future funding rounds or liquidity events.

When do you need this document?

You need a CAFE when your startup requires quick access to capital but cannot establish a current valuation or when traditional equity fundraising would be too time-consuming or expensive. This document is particularly useful during pre-seed or seed funding stages when your company has promising prospects but limited trading history. CAFEs are also valuable when you want to maintain momentum with interested investors while preparing for a larger funding round, or when bridging funding gaps between major investment rounds.

Key legal considerations

The conversion mechanism represents the most critical aspect of your CAFE, determining how and when investor funds convert to equity shares. You must carefully define qualifying events, which typically include equity fundraising above specified thresholds, company sales, or IPO events. The agreement should specify discount rates or valuation caps that benefit early investors, while ensuring compliance with pre-emption rights under the Companies Act 2006. Directors' duties require ensuring the investment terms are in the company's best interests, and you must consider how conversion affects existing shareholders' rights. The purchase amount and payment terms should be clearly defined, along with any conditions precedent for the investment. Company representations and warranties protect investors but create potential liability, so ensure accuracy and seek appropriate legal advice on disclosure obligations.

Legal requirements in England and Wales

Under the Companies Act 2006, your company must have sufficient authorized share capital to accommodate potential conversions, and directors must have appropriate authority to allot shares when conversion occurs. The Financial Services and Markets Act 2000 may apply if the investment constitutes a regulated activity, particularly regarding financial promotion restrictions when marketing the investment opportunity. You must ensure compliance with consumer protection provisions under the Consumer Rights Act 2015 if any party could be classified as a consumer. The agreement must satisfy contract formation requirements under English law, including proper execution formalities. Share allotments resulting from conversion must comply with statutory pre-emption rights unless validly disapplied, and you may need shareholder approval for certain conversion scenarios. Consider whether the investment triggers disclosure obligations under the Companies Act 2006 or affects existing shareholder agreements. Professional legal advice is essential to ensure compliance with corporate law requirements and to structure conversion terms that protect both investor and company interests while maintaining regulatory compliance.