CCPS Terms Explainer + Dilution Model
Understand the Indian VC instrument, negotiated rights, and the maths behind a round.
What are CCPS?
Compulsorily Convertible Preference Shares (CCPS) are a hybrid instrument issued by Indian private limited companies to investors. They are preference shares that MUST convert into equity shares at a specified trigger (time-based or event-based). Used in ~90% of Indian VC/PE rounds as the primary investment instrument.
Why not direct equity?
FEMA and RBI rules require FDI investments to be made at a minimum price based on a valuation methodology (FEMA 20(R) Rule 22). By issuing CCPS first, the company receives capital at the negotiated valuation, then converts to equity at the same price. Equity directly to foreigners requires same pricing but CCPS is the market convention.
Why not a SAFE?
US SAFEs do not translate directly to India — the Companies Act does not recognise convertible notes that are not debt or equity. CCPS is the closest Indian equivalent to a US Preferred Stock round. Convertible Debentures (CCDs) are the debt-instrument equivalent.
Statutory basis: Companies Act 2013 s.43 (kinds of share capital) + s.47 (voting rights) + s.55 (issue of preference shares) + s.133 + Table H in Schedule I (articles for preference shares); FEMA 20(R) Rule 22 + Annex 1 (pricing guidelines for conversion to equity); SEBI ICDR Regulations (for listed companies — not applicable to Pvt Ltd); Ind AS 32 (financial instruments — CCPS classification)