Fundraising
Short answer
CCPS price the round now and carry investor rights through their conversion terms — the standard for priced institutional rounds in India. Convertible notes defer pricing to a future round but, in India, may only be issued by DPIIT-recognised startups subject to a prescribed minimum investment. For any non-resident investor, both routes carry FEMA pricing and reporting obligations that should be checked before the instrument is chosen.
CCPS: the priced-round standard
Compulsorily convertible preference shares set the price today. Investor protections — liquidation preference, anti-dilution, conversion mechanics, and often board and veto rights — live in the CCPS terms and the shareholders' agreement.
Under FEMA, CCPS are treated as equity instruments, so pricing guidelines and reporting apply at issue rather than at conversion. That is generally an advantage: the regulatory event happens once, at a moment you control.
Convertible notes: eligibility comes first
A convertible note is debt that converts into equity at a future round, usually with a discount, a valuation cap, or both. In India the instrument is available only to DPIIT-recognised startups, and only above a prescribed minimum investment amount per investor.
So the first question is never “is this the right instrument” but “are we allowed to issue one”. Companies discover the answer late surprisingly often, after documents have been drafted.
The dilution maths founders skip
Model the next round, not this one. A cap that felt founder-friendly at signing can convert into substantially more equity than expected once the discount, an expanded ESOP pool and the new investor's target ownership stack together in the same round.
Run the conversion against two forward scenarios before choosing. Founders are routinely surprised by which instrument actually costs them less — and it is not reliably the one with the friendlier headline terms.
A working rule
A priced institutional round: CCPS. A small, fast bridge between rounds, with sophisticated investors and DPIIT recognition already in place: notes can work well.
Either way, establish the residency of every investor before signing anything. The instrument choice and the investor's FEMA position interact in ways that standard templates do not warn you about.
This article is general information, current at the date shown, and is not advice on your specific facts. Tax and corporate law change, and thresholds and deadlines are amended regularly — check the position before you act on it, or ask us.
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Equity vs CCPS vs CCD vs convertible notes — with dilution simulation, ESOP pool design and drafting support for every agreement.
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