![]() ![]() These are also called note-alternative securities i.e., contractual rights to purchase the equity shares of the company at a future date. ![]() Initially, investors were uncertain about these novel notes, however, in recent years they have become increasingly popular for investing in startups. It also helps to create a standardized term sheet between startups and investors while postponing decisions about valuation, liquidation inclinations, and participation rights until later-stage rounds of financing while still allowing the opportunity to raise capital. SAFE has also become popular because they do not accrue interest while outstanding and have no maturity date. SAFE is a type of deferred equity legal contract that entitles investors to receive a company’s equity securities contingent upon certain events such as subsequent rounds of funding. SAFE was introduced by Y Combinator, an American startup accelerator, as an alternative to convertible debt. ![]() This post seeks to analyze the legality of SAFE notes and its variations in India as well as outline comparisons with the regulatory regime in other jurisdictions. One such method is investing through a Simple Agreement for Future Equity (“ SAFE”) notes. While CCD and CCPS are considered to be the most popular investment instruments used in India, some investors are now looking out for new investment routes that have proven successful in the global market. This trend has been noted across all sectors, both by value and volume. Indian startups have benefitted from record-high funding activities in the past few months. Over the years, hybrid instruments for investments such as Convertible Compulsory Debentures (“ CCD”) and Compulsory Convertible Preference Shares (“ CCPS”) have become very popular. When early-stage companies set out to raise capital, they are often presented with multiple fundraising vehicles to accomplish their goal. ![]()
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