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Structuring an Angel Round in India: CCPS, Convertible Notes and FEMA Pricing
How Indian startups structure angel rounds: choosing between equity, CCPS and convertible notes, valuation, FEMA rules for foreign angels, and the filings.
An angel round is often a startup's first taste of outside money — and the first time its equity needs proper structuring. Choosing the right instrument and getting the filings right avoids problems in later rounds. This guide explains the options.
Instrument Options
Equity shares
Straightforward: angels buy ordinary shares at an agreed valuation. Simple, but gives investors no preference rights.
Compulsorily Convertible Preference Shares (CCPS)
The most common instrument in Indian venture rounds. CCPS convert into equity at a set ratio or on set terms, and can carry liquidation preferences and anti-dilution protection. For foreign investors, compulsorily convertible instruments count as equity under FEMA.
Convertible notes
Available to DPIIT-recognised startups: an instrument evidencing debt, convertible into equity or repayable within a set period, for an investment of at least ₹25 lakh in a single tranche. Useful when the valuation is hard to agree, and permitted for foreign investors subject to conditions.
SAFEs
US-style SAFEs aren't a recognised instrument in India. Their economics are usually recreated through CCPS or convertible notes.
Valuation
A preferential allotment needs a valuation report from a registered valuer. For foreign investors, FEMA requires shares to be issued at or above fair value determined under internationally accepted pricing methods. Angel tax no longer applies, having been abolished from FY 2024-25.
Process and Filings
- Check authorised capital and increase it if needed (SH-7).
- Update the articles to reflect investor rights.
- Obtain a valuation report.
- Pass board and shareholder resolutions, and file MGT-14.
- Issue the private placement offer, receive funds in a separate bank account.
- Allot within 60 days and file PAS-3 within 15 days.
- For foreign investors, report in FC-GPR within 30 days of allotment.
Documents
- Term sheet.
- Shareholders' agreement and share subscription agreement.
- Amended articles.
Getting Help
Think Filing structures angel and seed rounds, handles valuations and filings, and keeps the cap table clean.