{"id":5267,"date":"2024-01-08T14:58:26","date_gmt":"2024-01-08T09:28:26","guid":{"rendered":"https:\/\/www.akgvg.com\/blog\/?p=5267"},"modified":"2024-01-08T16:07:51","modified_gmt":"2024-01-08T10:37:51","slug":"isafe-notes-in-india-significance-and-advantages","status":"publish","type":"post","link":"https:\/\/www.akgvg.com\/blog\/isafe-notes-in-india-significance-and-advantages\/","title":{"rendered":"iSAFE Notes In India: Significance And Advantages"},"content":{"rendered":"<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-5271\" src=\"https:\/\/www.akgvg.com\/blog\/wp-content\/uploads\/2024\/01\/iSAFE-Notes-In-India-Significance-And-Advantages.jpeg\" alt=\"iSAFE\" width=\"1024\" height=\"512\" srcset=\"https:\/\/www.akgvg.com\/blog\/wp-content\/uploads\/2024\/01\/iSAFE-Notes-In-India-Significance-And-Advantages.jpeg 1024w, https:\/\/www.akgvg.com\/blog\/wp-content\/uploads\/2024\/01\/iSAFE-Notes-In-India-Significance-And-Advantages-300x150.jpeg 300w, https:\/\/www.akgvg.com\/blog\/wp-content\/uploads\/2024\/01\/iSAFE-Notes-In-India-Significance-And-Advantages-768x384.jpeg 768w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/p>\n<p style=\"text-align: justify;\"><strong>Introduction<\/strong><\/p>\n<ul style=\"text-align: justify;\">\n<li>iSAFE (India SAFE) is an adaptation of the SAFE (Simple Agreement For Future Equity) document. Commonly used for seed-stage funding, they allow startups to raise funds quickly without valuation complexity.<\/li>\n<li><a href=\"https:\/\/www.100x.vc\/\" data-cke-saved-href=\"https:\/\/www.100x.vc\/\" data-cke-saved- target=\"_blank\" rel=\"noopener\">100X.VC<\/a>, an early-stage investment firm in India was the first to introduce the iSAFE in India in July 2019. It entails an agreement to acquire equity shares of a startup at a later date.<\/li>\n<li>An iSAFE note is not a debt instrument but a convertible security note beneficial for both startups and investors.<\/li>\n<li>In India, iSAFE note takes a legal form of Compulsorily Convertible Preference Shares (CCPS) which are convertible on the occurrence of specific events.<\/li>\n<li>They are governed by sections 42, 62, and 55 of the Companies Act, 2013 read with\u00a0<a href=\"https:\/\/www.sebi.gov.in\/sebi_data\/attachdocs\/apr-2017\/1492085873402.pdf\" data-cke-saved-href=\"https:\/\/www.sebi.gov.in\/sebi_data\/attachdocs\/apr-2017\/1492085873402.pdf\" data-cke-saved- target=\"_blank\" rel=\"noopener\">Companies (Share Capital and Debentures) Rules, 2014<\/a>\u00a0and\u00a0<a href=\"https:\/\/www.mca.gov.in\/Ministry\/pdf\/NCARules_Chapter3.pdf\" data-cke-saved-href=\"https:\/\/www.mca.gov.in\/Ministry\/pdf\/NCARules_Chapter3.pdf\" data-cke-saved- target=\"_blank\" rel=\"noopener\">Companies (Prospectus and Allotment of Securities) Rules, 2014<\/a><\/li>\n<li>Issuing iSAFE notes does away with the valuation exercise since the valuation is essentially postponed to a later date (when the priced round happens)<\/li>\n<li>An outstanding iSAFE note would be referenced on the startup\u2019s cap table like any other convertible security.<\/li>\n<\/ul>\n<p style=\"text-align: justify;\"><strong>Difference between iSAFE Notes and CCPS<\/strong><\/p>\n<p style=\"text-align: justify;\">CCPS holders enjoy the following advantages over iSAFE Noteholders:<\/p>\n<ul style=\"text-align: justify;\">\n<li>CCPS holders usually get a right to exit in a Shareholders Agreement (SHA). iSAFE Notes can only be converted to equity on the occurrence of a liquidation event.<\/li>\n<li>CCPS holders may get a board seat. It is not common for iSAFE holders to have a board seat in the startup.<\/li>\n<li>When issuing CCPS, a third-party valuation is typically necessary. Issuing iSAFE Notes does not require a third-party valuation.<\/li>\n<\/ul>\n<p style=\"text-align: justify;\"><strong>Benefits to Investors<\/strong><\/p>\n<ul style=\"text-align: justify;\">\n<li>No dilution occurs in the cap table until the occurrence of the priced round or an early conversion.<\/li>\n<li>The duration to conclude the deal is reduced by at least a few weeks, attributed to the time saved in drafting a SHA and the accompanying multiple iterations.<\/li>\n<li>If the event of liquidation, the iSAFE Note holders get a preference over the founders and other equity shareholders. They get a higher right to receive whatever money is left in the startup, helping them recover at least a part of their investment.<\/li>\n<\/ul>\n<p style=\"text-align: justify;\"><strong>Benefits to Startups<\/strong><\/p>\n<ul style=\"text-align: justify;\">\n<li>Since iSAFE Notes are not classified as debt, no interest accrues on iSAFE Notes.<\/li>\n<li>An iSAFE note is a simple agreement. The startup will save significant money in engaging lawyers to draft detailed SHAs.<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p style=\"text-align: justify;\"><strong>This content is meant for information only and should not be considered as an advice or legal opinion, or otherwise. <a href=\"https:\/\/www.akgvg.com\/\">AKGVG &amp; Associates<\/a> does not intend to advertise its services through this.<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Introduction iSAFE (India SAFE) is an adaptation of the SAFE (Simple Agreement For Future Equity) document. Commonly used for seed-stage funding, they allow startups to raise funds quickly without valuation complexity. 100X.VC, an early-stage investment firm in India was the first to introduce the iSAFE in India in July 2019. It entails an agreement to&#8230;<\/p>\n","protected":false},"author":1,"featured_media":5271,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[305],"tags":[1691,1694,1692,1693,1690,293,1695,746,1689,1688],"class_list":["post-5267","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-company-formation-consultants","tag-business-setup-advisor","tag-business-setup-advisor-bangalore","tag-business-setup-advisor-delhi","tag-business-setup-advisor-mumbai","tag-ccps","tag-company-formation","tag-company-investment","tag-investment","tag-isafe-benefits","tag-isafe-india"],"_links":{"self":[{"href":"https:\/\/www.akgvg.com\/blog\/wp-json\/wp\/v2\/posts\/5267","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.akgvg.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.akgvg.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.akgvg.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.akgvg.com\/blog\/wp-json\/wp\/v2\/comments?post=5267"}],"version-history":[{"count":4,"href":"https:\/\/www.akgvg.com\/blog\/wp-json\/wp\/v2\/posts\/5267\/revisions"}],"predecessor-version":[{"id":5272,"href":"https:\/\/www.akgvg.com\/blog\/wp-json\/wp\/v2\/posts\/5267\/revisions\/5272"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.akgvg.com\/blog\/wp-json\/wp\/v2\/media\/5271"}],"wp:attachment":[{"href":"https:\/\/www.akgvg.com\/blog\/wp-json\/wp\/v2\/media?parent=5267"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.akgvg.com\/blog\/wp-json\/wp\/v2\/categories?post=5267"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.akgvg.com\/blog\/wp-json\/wp\/v2\/tags?post=5267"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}