AS | Ankit Sarawagi|Founder, CFOmatrix·June 2026·11 min read | Updated Jun 2026 |
- CCPS is the standard for priced rounds in India. A US SAFE is not recognised under the Companies Act.
- Convertibles (CCD, iSAFE) suit the earliest stage, deferring valuation to the next round via a discount and cap.
- Watch three CCPS terms: the conversion ratio, the liquidation preference riding on the CCPS, and the anti-dilution flavour.
- Discount is commonly 10 to 20 percent (higher for earlier or riskier rounds); the valuation cap is the lever founders underestimate.
- Move from a convertible to a priced CCPS round once you have revenue or early revenue. Hire the right team for the compliances.
| CCPS The standard instrument for priced rounds in India | 10-20% Typical convertible discount (higher when earlier or riskier) | 3 terms Conversion ratio, liquidation preference, anti-dilution |
The Instruments at a Glance
Founders often pick up fundraising language from US sources and assume a SAFE is how you raise. In India the toolkit is different. Here are the three instruments you will actually meet, and where each fits.
| Instrument | What it is | Typical stage | Priced now? |
|---|---|---|---|
| CCPS | Compulsorily Convertible Preference Shares that convert into Equity Shares | Seed and Series A (priced) | Yes |
| CCD | Compulsorily Convertible Debentures, debt that compulsorily converts to shares | Angel and pre-seed | Deferred |
| iSAFE | India-adapted SAFE, a convertible that converts at the next round | Angel and pre-seed | Deferred |
| US SAFE | US instrument, not recognised under the Indian Companies Act | Not used in India | n/a |
The pattern is simple: convertibles (CCD or iSAFE) for the earliest cheques where pricing is hard, and CCPS once the round is priced. Everything else is detail.
Why India Uses CCPS, Not US SAFEs
The headline reason is legal: a US SAFE is not a recognised instrument under the Companies Act, so you cannot simply lift a US SAFE template and use it for an Indian company. Indian law works through shares and convertible securities, which is why CCPS became the standard for priced rounds.
CCPS suits the Indian system for a few reasons. The shares are compulsorily convertible, which matters under FEMA: foreign investment into an instrument that must convert into equity is treated as equity rather than debt, keeping the round clean for overseas investors. CCPS also lets investors hold defined preference rights (on conversion, liquidation and anti-dilution) while founders keep ordinary Equity Shares, which is exactly the risk-sharing both sides want. The result is an instrument that is well understood by Indian investors, lawyers and the registry.
The CCPS Terms That Actually Matter
When you raise on CCPS, the valuation gets the attention but the terms decide the outcome. Three are worth reading line by line.
Conversion ratio
This decides how many Equity Shares each CCPS becomes on conversion. It usually starts at 1:1, but it adjusts for share splits, bonus issues and, importantly, anti-dilution. A change to the conversion ratio quietly changes everyone’s ownership, so understand exactly what triggers an adjustment.
Liquidation preference riding on the CCPS
The liquidation preference attaches to the CCPS and decides who gets paid first, and how much, if the company is sold or wound up. A 1x non-participating preference (the investor gets their money back or converts, whichever is higher) is founder-friendly and common. A participating preference (money back and then a share of the rest) is harsher and can badly skew payouts at a modest exit. This single clause can matter more than the valuation.
Anti-dilution flavour
Anti-dilution protects the investor if you later raise a down round at a lower price. The flavour is everything: broad-based weighted average is the reasonable, widely accepted version and only partially adjusts; full ratchet is aggressive and reprices the investor as if they had always paid the lower price, hitting founders hard. Push for broad-based weighted average.
A great valuation with a participating liquidation preference and full-ratchet anti-dilution can be a worse deal than a lower valuation with clean terms. Read the rights, not just the price. These clauses are covered in depth in our shareholders agreement and term sheet series and summarised in the term sheet decoded for founders.
Convertibles for the Earliest Stage: CCD and iSAFE
At the angel or pre-seed stage, pricing the company is mostly guesswork, so founders raise on a convertible instead. A CCD (Compulsorily Convertible Debenture) behaves like debt that must convert into shares at a later event, and an iSAFE is an India-adapted version of the SAFE that converts at the next round. Both let you take money quickly without fixing a valuation today.
The economics sit in two levers: a discount to the next round’s price, and a valuation cap. When the next priced round happens, the convertible converts into shares using whichever of these gives the investor the better price, rewarding them for coming in early. The valuation is set later, by the priced round.
Discount vs Valuation Cap
These two terms are where convertible deals are won and lost, and founders tend to focus on the wrong one.
- Discount: a percentage off the next round’s price when the convertible converts. Commonly 10 to 20 percent, and higher (towards 30 to 35 percent) for earlier or riskier cheques. Easy to understand, and usually the smaller effect.
- Valuation cap: a maximum valuation at which the money converts, no matter how high the next round is priced. If your next round prices well above the cap, the early investor converts at the cap and ends up with a much larger stake than the discount alone would give.
The lesson: founders obsess over the discount and underestimate the cap. A low cap on a convertible can hand an early investor far more ownership than expected if the company does well, because the cap, not the discount, decides their conversion price. Negotiate the cap as carefully as the valuation, and model what it converts into at a few different next-round prices.
Discount is the visible lever; the cap is the powerful one. Always ask: at the cap, what stake does this convertible become at my next round price? See how that flows into ownership in how much to raise and at what valuation.
When to Use a Convertible vs a Priced CCPS Round
The practical rule is about revenue, not stage labels.
Use a convertible (CCD or iSAFE) when you are pre-revenue or very early. There is little to anchor a valuation on, so fixing a number is a fight that helps no one. A convertible lets you take the money and defer the valuation to the next round, when you will have more to show.
Move to a priced CCPS round once you have revenue or early revenue. Now you can anchor a valuation to revenue multiples and what comparable companies are valued at, and investors are willing to price and take defined equity rights. The arrival of real revenue is the trigger to graduate from a convertible to a priced round.
No revenue, hard to price: take a convertible. Revenue arriving, you can defend a number: do a priced CCPS round. Let the business, not the calendar, decide when to price.
Getting the Compliance Right
Whatever instrument you choose, issuing it carries real compliance: a valuation report, board and shareholder approvals, share allotment and Form PAS-3, and for foreign investors FEMA pricing and FC-GPR reporting. None of it is impossible, but it is detailed and easy to get wrong, and mistakes surface in your next due diligence.
The honest advice here is not a clever hack: hire the right team for the compliances. A good company secretary, chartered accountant and startup lawyer will structure the instrument correctly, get the valuation and filings right, and keep your cap table clean. The cost is small next to the cost of a botched issuance that an acquirer or future investor flags years later. The full closing checklist is in the legal side of fundraising.
“In India the instrument is CCPS, not a US SAFE. Read three things before you sign: the conversion ratio, the liquidation preference and the anti-dilution flavour. They can matter more than the valuation.”
Ankit Sarawagi, CFOmatrixFrequently Asked Questions
What is CCPS?
CCPS stands for Compulsorily Convertible Preference Shares. It is the standard instrument for priced equity rounds in India: the investor holds preference shares that must convert into Equity Shares at a later date or event, carrying agreed rights such as a conversion ratio, a liquidation preference and anti-dilution protection. Because the shares are compulsorily convertible, foreign investment in CCPS is treated as equity under FEMA.
Why do Indian startups use CCPS instead of a US SAFE?
A US-style SAFE is not a recognised instrument under the Companies Act, so Indian priced rounds use CCPS instead. CCPS gives investors defined rights and converts into Equity Shares, and it fits Indian company law and FEMA pricing rules. At the very earliest stage, founders sometimes use Compulsorily Convertible Debentures (CCDs) or an India-adapted SAFE (iSAFE), but these are convertibles that still convert into shares, not the US SAFE form.
What CCPS terms should founders watch?
Three terms matter most. The conversion ratio decides how many Equity Shares each CCPS becomes, and it adjusts for splits and anti-dilution. The liquidation preference rides on the CCPS and decides who gets paid first and how much on an exit, with 1x non-participating being founder-friendly and participating preferences being harsher. The anti-dilution flavour protects investors in a down round, where broad-based weighted average is reasonable and full ratchet is aggressive.
What is the difference between a discount and a valuation cap?
On a convertible, the discount gives the investor a percentage off the next round’s price when their money converts, commonly 10 to 20 percent and sometimes higher for earlier or riskier rounds. The valuation cap sets a maximum valuation at which their money converts, regardless of how high the next round is priced. Founders often focus on the discount but underestimate the cap, which can matter far more if the next round is priced well above the cap.
When should I use a convertible instead of a priced CCPS round?
Use a convertible (CCD or iSAFE) when you are pre-revenue or very early, because there is little to anchor a valuation and it is better to defer pricing to the next round. Once you have revenue or early revenue, a priced CCPS round usually makes sense, because you can anchor a valuation to revenue multiples and give investors defined equity rights. The presence of real revenue is the practical trigger to move from a convertible to a priced round.
Are CCPS and convertibles complicated to issue in India?
They carry real compliance: a valuation report, board and shareholder approvals, share allotment and Form PAS-3, and for foreign investors FEMA pricing and FC-GPR reporting. None of it is insurmountable, but it is detailed and easy to get wrong. The practical advice is to hire the right company secretary, chartered accountant and legal team to handle the compliances, rather than treating it as paperwork to do yourself.
Instrument features, ranges and rules here are general guidance for India as of 2026 and depend on your specific deal and on current law. This is general information, not legal, tax, financial or investment advice. Structure any instrument with a qualified company secretary, chartered accountant and lawyer.
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AS | Founder, CFOmatrix | Finance Strategy & Equity Compliance CFOmatrix is a knowledge platform focused on how finance actually works inside growing companies. Every insight is shaped by real operating experience across startups and growth-stage companies, including supporting founders through fundraising, due diligence and cross-border setups. |