iSAFE notes in India explained: what an investor holds
The iSAFE borrowed a Silicon Valley idea and fitted it to Indian law. Here's what you actually hold when you sign one, and what you don't.
By the MyStartupValley team
The iSAFE borrowed a Silicon Valley idea and fitted it to Indian law. Here's what you actually hold when you sign one, and what you don't.
The idea came from the SAFE that Y Combinator published for US startups: money now, equity later, price set at the next round. India's Companies Act has no clean home for a bare promise of future shares, so the Indian version had to be built on an instrument the law already knows. That changes what an investor holds. If you've read how CCPS and CCDs differ, you already know most of the answer.
What an iSAFE is
iSAFE stands for India Simple Agreement for Future Equity. You invest now, and you receive equity when the company raises a priced round, on terms agreed today. In law it's usually issued as compulsorily convertible preference shares, so you hold a real share from the start. It must convert. It can't be redeemed.
A June 2026 explainer in Bar & Bench puts it plainly: iSAFE is a name, and the instrument underneath is generally CCPS, though it can also take the form of CCDs. Either way it has to convert into equity. If redemption is needed, the parties need a different instrument altogether: a convertible note, or an optionally convertible share or debenture.
iSAFE vs convertible note
Both defer the price, and that's where the likeness ends. A convertible note is debt until it converts and can be repaid; an iSAFE built on CCPS is a share and can't be. The note also comes with statutory conditions on who can issue it and how much each investor must put in.
| Question | iSAFE (as CCPS) | Convertible note |
|---|---|---|
| What you hold | A preference share | Debt in the company's books |
| Who can issue it | A company issuing CCPS | Only a DPIIT-recognised startup |
| Minimum per investor | Set by the agreement | Rs 25 lakh, single tranche |
| Can it be repaid? | No, it must convert | Yes, or converted within 10 years |
| Return before conversion | Preference dividend, if declared | Interest, as the note's terms set |
The Rs 25 lakh floor applies to foreign investors too. The RBI's Master Direction on Foreign Investment, updated up to 15 June 2026, lets a non-resident put money into a startup's convertible notes for Rs 25 lakh or more in a single tranche. For an iSAFE, foreign money follows the CCPS route instead: equity, provided it's fully and mandatorily convertible.
What you hold before conversion
Before conversion you're a preference shareholder whose stake isn't set yet. Your name is on the register, but your percentage depends on the next round's price and on the conversion terms you signed. Those terms are the whole deal. Read them as if they were the valuation, because in a way they are.
The cap and the discount
A valuation cap sets the highest price at which your money converts. A discount gives you a lower price than new investors pay. Some iSAFEs carry one, some both. The cap is the number that protects you if the company does well before the next round. Without one, a strong year for the company means a smaller stake for you.
The triggers
What makes it convert? A priced round, usually. Sometimes a sale or a liquidity event. And sometimes a long stop date. Check what happens if the company is sold before anyone sets a price, because that's exactly when vague drafting costs you.
The valuation behind the issue
An iSAFE doesn't fix the next round's price, but issuing CCPS still needs a valuation under the rules for preference shares. Ask for the report. It's a document you'd want in diligence anyway.
An iSAFE defers the price. It doesn't defer the paperwork.
Why deferring the price matters more now
An iSAFE converts at the next priced round, so its value depends on that round happening. In 2026, seed rounds for Indian tech startups got scarcer. When the next round takes longer, you hold an unpriced share for longer, with your stake still unknown.
According to Tracxn's 9M 2026 report on Indian tech startups, seed funding fell 37% to $698M from 1 January to 21 September, and first-time funded companies dropped 30% to 338. Pricing at this stage is hard anyway. In a survey of 885 venture capitalists, mostly in the US and from 2016, 17% of early-stage investors used no quantitative metric at all to evaluate deals. Deferring the price is honest about that. It still leaves you exposed to the wait. The checks that matter before you sign are in what investors check at pre-seed and seed.
A checklist before you sign an iSAFE
Treat an iSAFE like any CCPS subscription, with extra attention on conversion. You're agreeing today to a price you won't know until later, so the drafting has to do the work a valuation normally does. Five items cover it.
- Cap and discount: is there a cap, and is the discount on top of it or instead of it?
- Most favoured nation: do you get better terms if a later iSAFE holder does?
- Triggers: priced round, sale, long stop date. What converts, at what price?
- Paperwork: the CCPS valuation report, board and shareholder approvals, the PAS-3 filing.
- Cap table: every other iSAFE and note outstanding, modelled at the next round.
What to do next
Before your next iSAFE, model your stake at three prices for the next round: low, expected and high. If the cap makes the high case look bad for you, negotiate the cap, not the cheque size.
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Questions
What is an iSAFE note in India?
iSAFE stands for India Simple Agreement for Future Equity. It's an early-stage instrument that lets an investor put money in now and receive equity at a later priced round. Under Indian company law it's usually issued as compulsorily convertible preference shares, so it must convert and can't be redeemed.
Is an iSAFE the same as a convertible note?
No. A convertible note is debt in the company's books until it converts, can be repaid, can only be issued by a DPIIT-recognised startup, and needs at least Rs 25 lakh per investor in a single tranche. An iSAFE is usually a preference share, not debt, and it must convert into equity.
Does an iSAFE need a valuation?
It doesn't fix the price of the next round, which is the point of it. But because it's issued as CCPS, the issue itself still needs a valuation under the rules for preference shares. Ask for that valuation report, because it sits behind the instrument you're signing.
What happens to an iSAFE if the company is sold before a priced round?
That depends on the conversion triggers in the agreement. Some iSAFE terms treat a sale or other liquidity event as a trigger, converting or paying out on set terms. Read this clause closely, because a company sold early is exactly when the terms decide what you receive.
Sources: Bar & Bench, Convertible notes and SAFE notes in India: The dilemma, 9 Jun 2026 · Reserve Bank of India, Master Direction: Foreign Investment in India (updated up to 15 Jun 2026) · CXOToday, Tracxn 9M 2026 report: India tech funding rises 7% to $10.3B despite 38% drop in deal volume, 24 Sep 2026 · Gompers, Gornall, Kaplan and Strebulaev, How Do Venture Capitalists Make Decisions?, NBER Working Paper 22587, 2016 (Journal of Financial Economics, 2020)