CCPS vs CCD: what an investor holds in an Indian round
Indian rounds rarely issue plain equity. The instrument you hold changes what you own, what you're owed and when either one becomes real.
By the MyStartupValley team
Indian rounds rarely issue plain equity. The instrument you hold changes what you own, what you're owed and when either one becomes real.
Entrackr's count, compiled by TheKredible, put Indian startup funding at $13 billion across 1,250 deals in 2025, according to its annual report. Each of those deals issued something. Often it was compulsorily convertible preference shares, sometimes compulsorily convertible debentures, sometimes a note. The term sheet names the instrument in one line. That line decides whether you're a shareholder or a lender until conversion, and it changes how every other clause in the term sheet clauses Indian angels should read actually works.
CCPS vs CCD in one paragraph
CCPS are preference shares that must turn into equity shares on set terms. From the day they're allotted, you're a shareholder with preference rights. CCDs are debentures that must turn into equity. Until they do, you're a creditor: the company owes you money, and you have no shareholder rights. Both end as equity. Your road there differs.
How CCPS work
CCPS put your name on the Register of Members from day one. You hold a preference share, which ranks ahead of equity shares on dividends and on the return of capital, and it converts into equity at a ratio set when it's issued. That's why CCPS can carry rights your plain equity share can't easily hold.
The most valuable of those rights is the liquidation preference, which decides who's paid first on a sale; the worked example on liquidation preference shows how much it can move. CCPS also carry anti-dilution adjustments, so the conversion ratio shifts if a later round is priced lower. The conversion ratio is the number that turns your cheque into a stake. Read how it adjusts as well as where it starts.
How CCDs work
CCDs make you a lender until conversion. The company records your money as debt on its balance sheet, may pay you interest, and owes you nothing in shares until your conversion date or trigger arrives. You don't vote as a shareholder in that time. If the company is wound up first, you rank as a creditor.
Why would anyone pick that? Bridges, often. A company between rounds may want money now and a price later, and a debenture with a conversion formula can carry it across. Some investors also like sitting ahead of shareholders until the price is set. But it's a different position. You're owed. You don't own.
| Question | CCPS | CCD |
|---|---|---|
| What you hold before conversion | Preference shares | Debentures (debt) |
| Your status | Shareholder | Creditor |
| Return before conversion | Preference dividend, if declared | Interest, if the terms set one |
| Rank in a winding up | Ahead of equity shares | Ahead of all shareholders |
| Typical use | Priced seed and Series A rounds | Bridges and rounds priced later |
Before conversion, a CCPS holder owns part of the company. A CCD holder is owed money by it.
What the RBI rules say about foreign money
If any investor in the round is foreign, the RBI's rules decide whether the instrument counts as equity or debt. Only fully, compulsorily and mandatorily convertible preference shares and debentures count as equity instruments. Anything optionally convertible, or redeemable, is treated as debt, with its own and tighter rules.
The RBI Master Direction on Foreign Investment in India, updated up to 15 June 2026, also says the price or conversion formula must be fixed upfront at issue, and the conversion price can't be lower than the fair value worked out when the instrument was issued. So there's a valuation report behind every compliant conversion. Ask for it. The same direction lets an Indian startup issue convertible notes to a foreign investor for Rs 25 lakh or more in a single tranche, which is where how iSAFE notes work in India picks up.
Compare that with the global picture. In a survey of 885 venture capitalists, mostly in the US and from 2016, investors got redemption rights 45% of the time. An Indian round with foreign money can't simply copy that term, because a redeemable instrument stops being equity under FEMA.
Writing a domestic angel cheque? These rules may not bind your round today. They'll still shape it later. If a foreign fund leads the next round, every earlier instrument has to sit cleanly beside its CCPS, and a loosely drafted note or debenture from the seed round becomes a cleanup task at Series A. You'll pay for that cleanup in weeks.
What to read before you sign
Whichever instrument your term sheet names, five things decide what you'll actually own. Check each one in the share subscription agreement and the articles, not only the term sheet, because the term sheet is a summary and the documents are what a court reads.
- Conversion ratio or formula: fixed at issue, with the valuation report behind it.
- Conversion triggers: a date, the next priced round, a sale or an IPO.
- Adjustments: anti-dilution, and what happens if the next round is priced lower.
- Rights before conversion: dividend or interest, information rights, board or consent rights.
- Filings: the allotment's PAS-3 with the Registrar of Companies and, for foreign money, the FC-GPR.
What to do next
On your next term sheet, find the instrument line before the valuation line. Then ask to see the conversion math worked through at the next round's likely price. If nobody can show it, that's your first diligence question.
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Questions
What is the difference between CCPS and CCD?
CCPS are compulsorily convertible preference shares: you're a shareholder from day one, with preference on dividends and capital, and your shares turn into equity on set terms. CCDs are compulsorily convertible debentures: you're a lender until conversion, and you become a shareholder only when the debentures convert.
Why do Indian startups issue CCPS instead of equity shares?
CCPS let a company give investors rights that plain equity can't easily carry, such as a liquidation preference and anti-dilution protection, while still converting into equity later. For foreign investors, the RBI treats fully and mandatorily convertible preference shares as equity instruments, so they fit the foreign investment rules.
When would a startup issue CCDs?
CCDs are often used for bridge rounds, where the company wants money before it sets a price, or where an investor prefers to sit as a creditor until conversion. The conversion price or formula still has to be fixed at issue under the RBI rules for foreign investment.
Do CCPS and CCDs have voting rights?
CCDs carry no shareholder vote before conversion, because the holder is a creditor. CCPS carry the limited voting rights the Companies Act gives preference shares, and term sheets usually add contractual rights, such as board seats or consent on key decisions, through the shareholders' agreement.
Sources: Reserve Bank of India, Master Direction: Foreign Investment in India (updated up to 15 Jun 2026) · Entrackr, Indian startup funding drops 10% to $13 Bn in 2025 but IPO count hits record 18, 30 Dec 2025 · Gompers, Gornall, Kaplan and Strebulaev, How Do Venture Capitalists Make Decisions?, NBER Working Paper 22587, 2016 (Journal of Financial Economics, 2020)