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Why we picked it A practising senior partner spells out exactly why a raw US SAFE is dangerous for an Indian entity: it can be treated as a 'deposit' and trigger a FEMA or Companies Act violation, a landmine that only detonates when you reach Series A. It then names the compliant substitutes (iSAFE via CCPS or CCD, and the DPIIT convertible note) so you know what to actually ask your lawyer to paper.

Convertible Notes and SAFE Notes in India: The Dilemma

From Bar & Bench by Madhavan Srivatsan 10 min read

  • A US-form SAFE is not recognised in Indian law and can be recharacterised as a 'deposit', exposing the company under FEMA and the Companies Act
  • The compliant SAFE substitute is an iSAFE structured as CCPS/CCD that compulsorily converts on a qualifying round, avoiding any redemption feature
  • The convertible note route is open only to DPIIT-recognised startups, with a 25 lakh minimum per investor and a 10-year conversion or repayment clock
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Answers SAFE or priced round: which instrument should I use for my first raise, and does it work in India? SAFE or convertible note or priced round: which instrument should I raise on? How do stacked SAFEs at different caps convert into a mess at my priced round? Can I even use a SAFE in India, or do I have to do a CCPS or convertible note?