By Palak Devpura
A founder told me recently, “The investor is ready. We just need to decide the instrument.” That sentence sounds simple until you realize the instrument can shape valuation, control, compliance and even the next funding round.
For an Indian startup, SAFE-style instruments, convertible notes and compulsorily convertible preference shares (CCPS) can all solve a similar commercial problem bringing capital in before or alongside a priced equity round but they do it differently.
READ: Founder Dilution explained: What happens to your equity after funding? (October 14, 2026)
Start with the convertible note. Under India’s foreign investment framework, a convertible note is specifically recognized for eligible startup companies. The RBI’s current Master Direction describes it as money received initially as debt that can either be repaid or converted into equity within a period not exceeding ten years, depending on agreed trigger events. Where the investor is a non-resident, additional conditions apply, including a minimum investment threshold of ₹25 lakh in a single tranche and compliance with sectoral caps, pricing and entry-route rules.
CCPS, by contrast, is already an equity-linked security. It starts life as preference capital and compulsorily converts into equity according to an agreed formula. Venture investors often prefer CCPS because the instrument can carry negotiated economic and governance protections including liquidation preference, conversion mechanics and investor rights while fitting within India’s established equity framework. RBI guidance also treats fully and mandatorily convertible preference shares as equity instruments for foreign investment purposes.
And then there is SAFE. Globally, a SAFE is popular because it postpones valuation and keeps early documentation relatively light. In India, however, “SAFE” is not a separately defined statutory fundraising instrument in the same way that a convertible note is. Indian founders sometimes use SAFE-style or iSAFE structures, but the legal implementation must still fit within the Companies Act, FEMA rules and the company’s actual capital structure. A document being short does not make the compliance disappear.
So which one should you choose? Ask three questions. First: do you want to defer valuation? Second: is the investor resident in India or overseas? Third: what rights will the investor expect before and after conversion? A founder who only compares legal fees is comparing the least important number in the transaction.
READ: What happens after a startup receives a term sheet? (October 13, 2026)
The right instrument is the one that works not only today, but also survives tomorrow’s due diligence. Before signing, model the conversion, dilution and rights as if your next institutional investor were already sitting across the table.
At Spinach Lawz, this is often where we ask founders to look beyond the check: the structure of the money can matter almost as much as the money itself.
(Palak Devpura is co-founder of Spinach Laws, a startup-focused legal services firm advising founders on incorporation, brand protection and cross-border transactions. This column is part of the ongoing Spinach Laws × The American Bazaar series on law for founders.)