SAFE (Simple Agreement for Future Equity)

A SAFE is not a loan — it is a right to receive equity in a future priced round. There is no interest rate and no maturity date. The investor gets shares when you raise a priced round, at a price calculated using the valuation cap and/or discount rate.

India-specific: SAFEs are not natively recognized under Indian company law. They are typically structured as Compulsorily Convertible Preference Shares (CCPS) or Compulsorily Convertible Debentures (CCDs) to comply with FEMA regulations for foreign investors.

• Pros: Simple, fast to close (days not weeks), no interest accrual, no maturity cliff
• Cons: Founder dilution can be unclear at signing; post-money SAFEs can surprise founders at cap table calculation
• Best for: Pre-seed and early seed rounds with angel investors who understand the instrument

Convertible Note

A convertible note is a short-term loan that converts to equity at a future round. It carries an interest rate (typically 8–12% per annum) and a maturity date (typically 18–24 months). Formally recognized under the Companies Act 2013 amendment in 2017, making it easier to issue to foreign investors compared to SAFEs.

• Pros: Legally well-understood in India, interest accrues in founder's favor if cap is hit early
• Cons: Maturity date creates pressure — if you haven't raised your next round by maturity, note holders can demand repayment
• Best for: Bridge rounds, situations where investors prefer debt-like security, or when raising from foreign investors

Priced Round (Equity Round)

A priced round is a direct equity investment at a negotiated valuation. Investors receive shares (typically CCPS in India) at a defined price per share. Requires a full term sheet, shareholder agreement, and significant legal documentation — typically 4–12 weeks to close.

• Pros: Clear ownership, investor rights are well-defined, no conversion uncertainty
• Cons: Expensive and time-consuming to close; valuation negotiation can be contentious
• Best for: Seed rounds of ₹1Cr+ with institutional investors, or any round with a VC lead investor

Pro-Rata Rights

The right for an investor to maintain their ownership percentage in future rounds. Negotiate to limit pro-rata to major investors (those above a certain investment threshold, e.g., ₹1Cr+), to avoid crowding out new lead investors in later rounds.

Information Rights

Investors typically ask for quarterly financials, annual audited accounts, and an annual budget. Watch for overly broad information rights that include access to customer lists or real-time operational data — these can be a distraction and a competitive risk if the investor has portfolio conflicts.

Board Seats

Resist giving board seats in pre-seed and seed rounds. A typical early board is 3 seats: 2 founders + 1 independent director. Never give investors a majority of board seats in early rounds.

Anti-Dilution

Anti-dilution protection adjusts an investor's conversion price in a down round. Broad-based weighted average is founder-friendly and market standard. Never agree to full ratchet — it can be catastrophically dilutive.

Liquidation Preference

A 1x non-participating preference is the market standard and acceptable. Watch for participating preferred (double-dip) or multiples above 1x — these can leave founders with very little in modest-outcome acquisitions.

Corpfy's SAFE & Term Sheet dashboard handles the full lifecycle of your pre-seed and seed financing — build each SAFE note (amount, valuation cap, discount %), preview exactly how it converts at different priced round scenarios, and generate a formatted term sheet. The projected dilution KPI updates automatically as you add notes so you always know your total SAFE overhang.

What you get in the dashboard