iSafe

What is an iSAFE Note?

“iSAFE” stands for India Simple Agreement for Future Equity. An investor makes a cash investment in return for a convertible instrument. An iSAFE note is not a debt instrument, but a founder-friendly convertible security note that benefits both startups and investors. To comply with applicable Indian law, an iSAFE note takes the legal form of compulsorily convertible preference shares (CCPS), convertible on the occurrence of specified events.

How will an investment in iSAFE happen?

The investor and startup agree on the investment amount, mutually sign an iSAFE agreement, and the investor sends the investment amount after applicable legal and secretarial formalities are completed. An outstanding iSAFE note is referenced on the company’s cap table like any other convertible security, such as a warrant or option.

To whom will the startup issue iSAFE notes?

iSAFE notes are issued by the startup in favour of the investors—the iSAFE note holders.

What are the benefits to the startup of receiving the FIRST investment through an iSAFE note?

Early-stage startups are commonly at the idea, MVP, or very early revenue stage, when assigning a valuation can be unfair. iSAFE notes remove the need to state a pre-money or post-money valuation because equity is issued later, at a priced round after the startup has achieved more stable traction. The template-driven agreement also reduces legal complexity and cost, offers founder-friendly terms, and enables a faster first funding round.

When do iSAFE notes convert to equity shares?

iSAFE notes automatically convert into equity shares on specified liquidity events—such as the next priced round, dissolution, merger, or acquisition—or at the end of three years from the date of issue, whichever is earlier.

Do iSAFE note holders have liquidity preference over Equity holders / Promoters / Founders?

Yes. iSAFE note holders have liquidity preference, to the extent of their invested capital, over founders and equity shareholders.

Do FIRST iSAFE note holders have liquidity preference over subsequent iSAFE note holders / investors?

First iSAFE note holders have pari-passu rights with subsequent iSAFE note holders and investors.

Can a startup issue iSAFE notes to subsequent investors?

Yes. Startups may issue subsequent iSAFE notes as necessary. This can help the startup secure a more appropriate valuation later in a priced round, after it has gained meaningful revenue or business traction.

How will the iSAFE note be reflected in the startup’s financials and will the company’s authorised & paid up capital go up by the amount of investment made under iSAFE notes?

The investment is reflected as CCPS—Compulsorily Convertible Preference Shares—in the financial statements. The authorised and paid-up capital must be increased by the extent of the investment made under the iSAFE note.