Convertible Notes

Convertible Notes

Convertible notes are one of the fastest, cleanest ways for early-stage startups to raise money — especially when valuation is uncertain. Instead of negotiating equity upfront, investors give funds now and convert into shares later, usually during the next funding round. It keeps paperwork simple, protects founders from premature dilution, and speeds up fundraising.

We help founders structure, document, and comply with convertible note issuances so they stay safe, legal, and investor-ready.

What is a Convertible Note?

A convertible note is a debt instrument that converts into equity at a later stage — typically during the next priced round (Seed, Pre-Series A, etc.).
The investor gives money today, and instead of repayment, the amount converts into shares.

Convertible notes can include:

• Valuation cap

• Discount rate

• Interest rate (optional)

• Maturity date

• Conversion triggers

Why startups prefer convertible notes

• No need to set valuation early

• Faster fundraising than equity rounds

• Less dilution upfront

• Minimal paperwork and negotiation

• Clean structure for follow-on VC rounds

• Accepted by Indian laws for eligible startups (DPIIT recognised)

Why investors like convertible notes

• Convertible at discount during next round

• May include valuation cap or interest

• Seniority over equity in downside scenarios

• Simple and faster than equity deals

Eligibility under Indian law (important)

Convertible notes can be issued only by:

• DPIIT-recognized startups

• Indian private limited companies

To:

• Resident investors

• NRIs & foreign investors (with FEMA compliance)

Minimum investment from a single investor must be ₹25 lakh or more in one go.

What we assist with

1. Structuring the Convertible Note Round

• Valuation cap & discount strategy

• Interest & maturity terms

• Conversion triggers (next round, timeline, etc.)

• Founder-friendly dilution planning

2. Documentation & Agreements

• Convertible Note Agreement (CNA)

• Term Sheet

• Board & shareholder resolutions

• Register of debenture holders

• ROC filings (PAS-3, MGT-14 if applicable)

3. FEMA Compliance for NRI/Foreign Investors

• Pricing guidelines

• Filing of Form CN under SMF on RBI FIRMS portal

• Bank KYC, FIRC, declarations

• End-to-end support

4. Post-Issuance Support

• Cap table updates

• Maintaining registers & records

• Conversion into equity when next round happens

• Clean documentation for VC due diligence

Why this stage needs professional help

• Incorrect structuring can block future VC rounds

• Misalignment on valuation cap or discount can cause founder disputes

• FEMA or ROC non-compliance can lead to penalties

• Proper cap table management is essential for future funding

• Ensures investors trust the process and documentation

Documents usually required

• Company incorporation documents

• Investor KYC (resident / NRI / foreign)

• DPIIT startup certificate

• Bank statements & FIRC (if foreign funds)

• Terms (cap, discount, maturity, interest)

• Board & shareholder approvals

• Registers and ROC filings

Our process

1. Understand funding goals and investor terms

2. Choose optimal structure (cap, discount, interest, maturity)

3. Draft agreements and prepare ROC/FEMA filings

4. Issue notes and update statutory records

5. Assist at conversion event during next round