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SAFE & Convertible Notes

SAFE and convertible note structuring for Indian startups. YC-style SAFE is not directly enforceable in India; what you actually need is an iSAFE (CCPS), a Convertible Note (DPIIT startups, ₹25L minimum per investor), or CCPS / CCD directly. We help pick the right structure, model conversion outcomes, and stay FEMA-compliant. Lawyer drafts the final document; we work alongside.

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The Conversion Workflow.

Four sequential stages from structure question to signed instrument. Typical timeline: 1-3 weeks for a single-investor SAFE or convertible note; 3-5 weeks for a multi-investor SAFE round with cumulative dilution modelling. Faster than priced rounds; not trivial because India-specific structuring matters.

Stage 1
Structure selection
Which instrument actually fits: iSAFE (CCPS-structured) for sub-₹25L tickets, no DPIIT prerequisite; Convertible Note for DPIIT startups with ₹25L+ per investor; CCPS / CCD for priced-equity-deferred rounds; or restructured iSAFE for foreign investors. Decision driven by ticket size, investor profile (resident / non-resident), DPIIT status, and round dynamics. Wrong structure here causes problems later.
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Stage 2
Term review & cap-discount setting
Each variable term reviewed against 2026 Indian conventions: valuation cap (set to realistic next-round expectation, not aspirational ceiling), discount (typically 15-25%), MFN clause, conversion triggers, maturity (for CCNs), pro-rata rights, information rights. Cap too high → no investor protection. Cap too low → founder over-dilution at next round. Both are common errors.
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Stage 3
Conversion modelling & cumulative dilution
Conversion outcomes modelled at next priced round across multiple valuation scenarios. If multiple SAFEs are stacking (common at seed): cumulative dilution calculated across all instruments at next-round trigger. Founders consistently underestimate dilution from 3-5 stacked SAFEs; the math is straightforward but tedious and worth doing before the third SAFE gets signed.
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Stage 4
Filing & lawyer handoff
Compliance side handled: Section 42 private placement under Companies Act, share allotment via Form PAS-3, FC-GPR within 30 days for foreign investors, board resolutions, statutory registers updated, ROC filings. Document drafting goes to your lawyer with our brief on the economic terms; we stay on the filings and conversion-event compliance side.
↺ One-time per round, plus optional engagement at the eventual conversion event (next priced round, M&A, IPO, or maturity). Conversion math at the trigger is its own engagement; founders frequently engage us at both bookends (SAFE issuance + SAFE conversion).

What Is a SAFE in India?

A SAFE (Simple Agreement for Future Equity) is a US-origin financing instrument popularised by Y Combinator: a contractual promise to issue equity at a future priced round, deferring valuation negotiation until then. SAFEs are not loans, not preference shares, and not common stock at issuance, just a contractual right with conversion mechanics. The original 2013 SAFE and its 2018 post-money variant are standard in US accelerator and seed rounds.

In India, the YC-style SAFE is not directly enforceable. Indian company law does not recognise a non-debt, non-equity contractual instrument that promises future shares without specific consideration at issuance. Founders who download the YC template and sign it as-is create a legal problem: the document may not be enforceable under Indian Companies Act, and for foreign investors it can create FEMA violations. What you actually need is one of three Indian-law structures, all of which can mirror SAFE-style economics.

The three Indian structures founders actually use

1. iSAFE (Indian SAFE), structured as CCPS: A market-developed contractual structure where the investor pays now, the company issues Compulsorily Convertible Preference Shares immediately (with a nominal 0.0001% dividend for Companies Act compliance), and the CCPS convert into equity at the next priced round per the agreed cap and discount. Governed by Sections 42, 55, 62 of the Companies Act and the 2014 Share Capital and Debentures Rules. No minimum ticket size; works for ₹5L angel cheques. Only private limited companies can issue; LLPs and partnerships cannot. 100X.VC alone has deployed iSAFE on 160+ Indian startups.

2. Convertible Note (statutory): Formally recognised in Indian law since 2017 for DPIIT-recognised startups only. Interest-bearing debt instrument that converts to equity at next priced round, M&A, IPO, or maturity (max 10 years). Minimum ₹25 lakh per investor per tranche, a hard regulatory floor. Provides repayment fallback if conversion doesn't happen. Used by CureFit, Razorpay, Udaan, Dunzo, PharmEasy for bridge rounds and seed. Best for tickets above ₹25 lakh from sophisticated investors who want debt-style protection.

3. CCPS / CCD directly: Compulsorily Convertible Preference Shares or Compulsorily Convertible Debentures issued directly under Sections 42, 55, 62 of Companies Act, without the iSAFE contractual wrapper. More formal documentation; works for any company structure; standard for institutional rounds where the investor wants explicit preference share terms (liquidation preference, dividend, anti-dilution) defined at issuance rather than deferred.

Which one fits you

Heuristic: angel rounds under ₹25L per cheque → iSAFE (CCPS-structured); seed rounds ₹25L+ per investor with DPIIT recognition → Convertible Note (better repayment fallback for investor); institutional rounds wanting explicit preference economics → CCPS directly. For foreign investors: FEMA pricing must be met at conversion (not at issuance); iSAFE works with care; Convertible Notes work; raw YC SAFE creates FEMA non-compliance risk. For all foreign investor cases: FC-GPR filing required within 30 days of share allotment (which happens at iSAFE / Convertible Note issuance for CCPS structures; at conversion for unstructured SAFEs, which is part of the problem).

Variable terms regardless of structure

Whatever instrument you choose, the negotiable economic terms are similar. Valuation cap: ceiling for conversion price at next round; cap too high means the cap rarely applies (investors lose protection); cap too low means founders over-dilute at next round. Discount: typically 15-25% off next round price. MFN clause: investor gets best terms of any future SAFE issued before priced round (creates founder tracking obligation). Conversion triggers: priced round, M&A, IPO, maturity. Pro-rata rights: participation in next round. Information rights: lighter than priced round, typically quarterly financials.

Section 56(2)(viib) angel tax abolition

The Finance Act 2024 abolished Section 56(2)(viib) from April 1, 2025 for all classes of investors. SAFE / convertible structures post that date no longer need to clear Rule 11UA valuation for angel tax purposes. Historical exposure (pre-April 2025 issuances under audit) is still relevant; we handle defence on legacy assessments. FEMA pricing remains in force for foreign investors; tax abolition does not relax foreign exchange rules.

What's in scope and what's not

This page covers SAFE / iSAFE / Convertible Note / CCPS issuance and conversion for Indian startups, including structure selection, term review, conversion modelling, and Section 42 / FEMA compliance filings. Not covered here: priced equity round term sheet review (see Term Sheet Review); valuation reports for FEMA pricing at conversion (see Valuation); full SHA / SSA drafting (your law firm); secondary transactions or buybacks of converted shares (separate engagement).

What Gets Done Each Cycle.

Six things that actually matter on Indian SAFEs and convertibles. Structure first, then terms; both must be right.

Structure selection
Threshold
Which instrument: iSAFE (CCPS) for sub-₹25L angel cheques, no DPIIT prerequisite; Convertible Note for DPIIT startups with ₹25L+ per investor, repayment fallback; CCPS / CCD directly for institutional rounds with explicit preference economics. Wrong structure here cascades into compliance issues later. Driven by ticket size, investor profile, and DPIIT status.
Valuation cap & discount
Economics
Cap: ceiling for conversion price at next round. Too high means cap rarely applies (investors lose intended protection); too low means founders over-dilute. Discount: 15-25% typical off next round price. Investors get whichever (cap or discount) gives them more shares. Setting cap requires honest forecast of next-round valuation, not aspirational ceiling.
MFN clause
Tracking obligation
Most-Favored Nation: this investor automatically gets the best terms of any subsequent SAFE issued before the priced round. Standard for sophisticated investors. Creates a founder tracking obligation: if you issue a friendlier SAFE later (lower cap or higher discount), prior MFN-holders flip to those terms. Common founder oversight; we track this for you.
Conversion mechanics
Trigger events
When and how conversion happens: Qualified Financing (priced round above a threshold), Liquidity Event (M&A, IPO), Dissolution Event (winding up), or Maturity (CCNs only; 10-year max). What the investor gets at each trigger; what happens if the qualified financing threshold is never reached. CCN holders may get repayment + interest at maturity; iSAFE holders typically don't.
FEMA / cross-border compliance
Foreign investors
For non-resident investors: FEMA pricing must be met at conversion (conversion price not below fair value per NDI Rules 2019), FC-GPR within 30 days of share allotment, sectoral FDI caps respected, Press Note 3 approval for land-border country investors. Raw YC SAFE used by foreign investor creates direct FEMA violation. iSAFE with CCPS issuance at outset is FEMA-clean.
Cumulative dilution modelling
Multi-SAFE rounds
Founders raising 3-5 stacked SAFEs at varying caps consistently underestimate cumulative dilution at next-round trigger. Each SAFE converts at its own cap or the next-round price (whichever is lower) less discount. Total dilution can be 5-10% more than founders expect. We model this before the third SAFE gets signed, not after.

When You Need Us to Handle This.

SAFE / convertible structuring looks templated but has India-specific gotchas. A short engagement keeps you compliant and avoids the most common founder errors. Here's when professional handling pays for itself.

Get help if
  • You're considering signing a YC-style SAFE. The YC document is not directly enforceable in India and creates FEMA risk for foreign investors. The investor probably knows this; you should too. We restructure the economics into an iSAFE (CCPS) or Convertible Note that achieves the same outcome with proper Indian legal grounding, in 1-2 weeks.
  • You're raising from foreign investors. FEMA pricing, FC-GPR filing, sectoral FDI caps, and (for land-border country investors) Press Note 3 approval all apply, even on convertible instruments. The mechanics differ between iSAFE and Convertible Note. Getting this wrong creates RBI compounding exposure that takes 6-12 weeks to remedy later.
  • You're raising 3+ stacked SAFEs across multiple investors. Cumulative dilution from stacked SAFEs at varying caps is consistently underestimated by founders. Modelling the total dilution before the third or fourth SAFE gets signed often changes founder strategy on cap-setting. The math is straightforward but rarely done in real time.
  • Your ticket sizes are around ₹25 lakh per investor. The Convertible Note framework requires ₹25 lakh minimum per investor per tranche, hard regulatory floor. iSAFE has no minimum. If your investor commitments are at the threshold, structure selection materially affects compliance. We assess which path keeps everyone clean.
  • Your SAFE / convertible is about to convert at a priced round. Conversion math at the trigger is its own engagement: multiple SAFEs with different caps and discounts, the new round's price, the investor pool, the MFN cascade if applicable. Founders frequently engage us at both bookends (issuance + conversion) rather than once.
Consider DIY if
  • You're using a known accelerator iSAFE template (100X.VC, Y Combinator India variant, etc.) with resident investors only. Accelerator-issued iSAFE templates have generally been pre-cleared by the accelerator's legal team for Indian enforceability. Cap and discount are usually set by accelerator standard. Self-review is fine; light compliance check (Section 42 filing, board resolution) optional.
  • You're raising from a single resident angel investor on a standard iSAFE. Simple cases with one resident investor and a standard template don't require deep structuring work. We can do a light review pass (1-2 days) for compliance check, but full engagement is overkill at this scale.
  • You're a repeat founder who has done SAFEs / convertibles before. Experienced founders who have raised SAFEs in prior rounds, worked with their lawyer through the structure decision once, and understand the FEMA / Companies Act compliance side can self-issue with light lawyer support. The first SAFE round is where professional structuring helps most.
  • You're running a straight priced round, not a SAFE round. Priced equity rounds with proper term sheet, valuation, SHA / SSA drafting are out of scope here. See Term Sheet Review for that engagement model. SAFEs and priced rounds are different beasts.

How We Work.

Six commitments. Structure selection, term review, conversion modelling, and FEMA / Companies Act compliance filings end-to-end. Lawyer drafts the final document; we work alongside. Faster than priced round engagements; not trivial because India-specific structuring matters.

NDA before SAFE / investor details shared
Non-disclosure agreement signed before you share the proposed SAFE / convertible terms, financials, investor identity, or cap table. NDA binds everyone on the engagement. Investor identity and cap stay confidential.
Single-investor SAFE in 1-3 weeks
Single resident investor on a standard iSAFE: 1-3 weeks from structure decision to signed document and Section 42 filing. Foreign investor: add 1 week for FEMA / FC-GPR compliance. Multi-investor SAFE round: 3-5 weeks for cumulative dilution modelling and parallel investor coordination.
Right structure for your situation
Honest assessment of which instrument fits: iSAFE / Convertible Note / CCPS directly, with reasoning. We do not push the structure we know best; we recommend the structure that fits your investor profile, ticket size, DPIIT status, and FEMA exposure. Wrong structure cascades into compliance issues months later.
Cumulative dilution modelled across all SAFEs
If you have or will have multiple stacked SAFEs: cumulative dilution at next-round trigger modelled across all instruments at varying caps and discounts. Done before the next SAFE gets signed, not after. Founders consistently underestimate cumulative dilution from 3-5 stacked SAFEs by 5-10%.
FEMA / Companies Act compliance handled
Section 42 private placement filing (Form PAS-3 / PAS-4), board resolutions, statutory register updates, share certificates, FC-GPR within 30 days for foreign investors, sectoral FDI caps verified, Press Note 3 approval coordinated where applicable. The compliance work that founders typically discover at next-round diligence if not done at issuance.
Available at conversion event, not just issuance
Conversion math at the trigger event (next priced round, M&A, IPO, maturity) is its own engagement and often the more consequential one. Multi-SAFE conversion with MFN cascades, FEMA pricing at conversion, share allotment paperwork, FC-GPR filings, all handled when the trigger fires. Most founders engage us at both bookends.

What Goes Wrong with SAFEs in India.

Specific things founders get wrong on SAFEs and convertibles in India. Most are mechanical and fixable in advance. The honest catalogue.

Risk if unregistered
Likelihood
Commercial impact
YC-style SAFE signed as-is
Not enforceable in India
Restructure as iSAFE (CCPS) or Convertible Note with proper Section 42 compliance
Convertible Note by non-DPIIT startup
Regulatory non-compliance
Convertible Notes only available to DPIIT-recognised startups; register DPIIT first (2-4 weeks) or use iSAFE / CCPS instead
Convertible Note under ₹25L per investor
Hard regulatory violation
Use iSAFE (no minimum ticket) for sub-₹25L cheques; or aggregate investor tranches to clear the threshold
Valuation cap set too high
Investor protection irrelevant
Cap set to realistic next-round expectation; if cap doesn't apply, investor pays full next-round price minus discount only
Multiple SAFEs without cumulative dilution model
5-10% extra founder dilution
Cumulative dilution modelled before each new SAFE; cap-setting recalibrated to total dilution target
MFN clauses creating untracked obligations
Investor cascade at next SAFE
MFN tracker maintained; later SAFE terms checked against MFN obligations before signing
Foreign investor SAFE without FEMA pricing
RBI compounding required at conversion
Conversion price meets fair value per NDI Rules 2019; FC-GPR filed within 30 days; sectoral caps verified
CCD issued without DRR exemption documentation
Deposit classification risk
DRR exemption under Companies Act startup exemptions documented; deposit classification under Sections 73-76 avoided
SAFE and convertible note structuring looks templated but has India-specific gotchas that surface at conversion or at next-round diligence. Each row above is preventable at issuance with the right structure choice. Get the foundation right; everything else follows. Get the foundation wrong; cleanup is expensive at the next round.

Frequently Asked Questions.

Not as-is. The YC SAFE template is built on US contract law and is not directly enforceable under Indian Companies Act 2013. Indian company law does not recognise a non-debt, non-equity contractual instrument that promises future shares without specific consideration at issuance. For foreign investors, signing a raw YC SAFE also creates FEMA compliance issues. What you need instead: iSAFE (CCPS-structured), Convertible Note (DPIIT startups, ₹25L+ per investor), or CCPS / CCD directly. We restructure the YC economics into a compliant Indian instrument in 1-2 weeks.
iSAFE: contractual structure where CCPS are issued at investment with nominal 0.0001% dividend, converting to equity at next priced round per cap and discount. No minimum ticket size. Private limited only. Convertible Note: statutory instrument under Companies Act 2017 amendment; DPIIT-recognised startups only; ₹25 lakh minimum per investor per tranche; interest-bearing debt; up to 10 years to conversion or repayment. CCPS / CCD directly: traditional preference shares or debentures issued under Sections 42, 55, 62 of Companies Act; more formal documentation; works for any company structure; standard for institutional rounds wanting explicit preference economics.
Heuristic: sub-₹25L per investor angel rounds → iSAFE (no minimum ticket, light structure). ₹25L+ per investor seed rounds, DPIIT-registered startup → Convertible Note (better repayment fallback for investor, statutory clarity). Institutional rounds wanting explicit preference economics → CCPS directly. Foreign investor cases: structure carefully for FEMA; iSAFE works with care, Convertible Notes work, raw YC SAFE creates non-compliance risk. We assess your specific case in the structure selection stage.
₹25,00,000 per investor per single tranche, hard regulatory floor under the Companies Act 2017 amendment. Multiple investors can participate in the same round, but each individual investor must commit at least ₹25 lakh in a single tranche to qualify under the Convertible Note framework. Common founder issue: angel rounds with smaller cheques (₹10-15 lakh) don't qualify and must use iSAFE / CCPS structure instead. Aggregating investor tranches to meet the threshold doesn't work; each investor stands alone for this test.
For Convertible Notes: yes, mandatory. The statutory Convertible Note framework applies only to DPIIT-recognised startups. For iSAFE / CCPS / CCD directly: no, these work for any private limited company. DPIIT registration is free, takes 2-4 weeks, and unlocks several benefits (80-IAC tax holiday on 3 of first 10 years, IPR fast-track, GeM access, Convertible Note eligibility). Most founders should register on day one regardless of fundraising structure.
Single resident investor on a standard iSAFE: 1-3 weeks from structure decision to signed document and Section 42 filing. Foreign investor: add 1 week for FEMA / FC-GPR compliance. Multi-investor SAFE round with cumulative dilution modelling: 3-5 weeks. Conversion event engagement at next priced round (separate from issuance): 2-3 weeks for the conversion math, share allotment, and filings.
Pricing depends on: (1) structure complexity (single iSAFE simpler than multi-investor Convertible Note round); (2) investor profile (resident only vs foreign, foreign adds FEMA workstream); (3) cumulative dilution modelling if multiple SAFEs are stacking; (4) filings included (Section 42, board resolutions, statutory registers, FC-GPR if applicable). We quote a fixed engagement fee once scope is clear. Materially lower than priced round engagement. Reach out for a specific quote.
Cap should reflect realistic next-round expectation, not aspirational ceiling. If your cap is set too high (significantly above what you actually expect to raise at), the cap rarely applies, investors lose the protection they thought they had. If set too low, founders over-dilute at the next round. Standard heuristic: cap at 1.5x to 2x current operational metric-based valuation; if you're raising the SAFE at an implicit ₹30Cr valuation, cap at ₹45-60Cr is reasonable for a 12-18 month runway. Sector and traction adjustments apply. We model the math against your projections.
Most-Favored Nation: this investor automatically gets the best terms of any subsequent SAFE you issue before the priced round. Standard request from sophisticated investors. Founder obligation: if you issue a later SAFE at a lower cap or higher discount, prior MFN-holders flip to those friendlier terms. Common founder oversight, signing 3-4 SAFEs at varying caps without tracking MFN cascades. We maintain the MFN tracker and check each new SAFE against existing MFN obligations before signing.
At a priced round (or other trigger event), all outstanding SAFEs / Convertible Notes convert to equity. Conversion price: whichever of the cap-based price or the next-round price minus discount gives the investor more shares. For foreign investors: conversion price must meet FEMA fair-value requirements (NDI Rules 2019), and FC-GPR filing required within 30 days of share allotment. For multi-SAFE rounds: each SAFE converts at its own cap and discount, cumulative dilution can be 5-10% more than founders expect. We do the conversion math, draft the allotment paperwork, and handle the filings, often a separate engagement from issuance.
Yes, for new fundraises post April 1, 2025. Section 56(2)(viib) angel tax was abolished by Finance Act 2024 effective FY 2025-26 onwards, for all classes of investors. New SAFE / convertible issuances no longer need to clear Rule 11UA valuation for angel tax purposes. Two caveats: (1) FEMA pricing remains in force for foreign investors, tax abolition does not relax foreign exchange rules; (2) legacy assessments for AY 2024-25 and prior years are still open and can trigger demands on past convertible issuances, requiring Rule 11UA-compliant valuation defence.
SAFE / convertible: faster (1-3 weeks vs 8-12 weeks for priced round), lower legal cost, defers valuation negotiation to next round, common for bridge / friends-and-family / accelerator rounds. Priced round: explicit valuation, full preference share economics defined, standard for institutional Series A+ rounds, slower and more expensive but cleaner cap table. Decision is usually round-stage and investor-driven: seed angels prefer SAFEs; institutional Series A investors typically want priced equity with full SHA. Bridge rounds between priced rounds usually run as SAFEs. We can advise either way; the structure follows the strategy, not the other way round.

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Structure Your SAFE.

Structure selection, conversion modelling, and FEMA / Companies Act compliance for Indian SAFEs and convertibles. 1-3 weeks for single-investor; longer for multi-investor stacked rounds. Lawyer drafts the final document; we work alongside. Talk to a CA in 15 minutes.