An iSAFE is not a SAFE – and knowing exactly why saves both sides real money. The US SAFE (Simple Agreement for Future Equity) is a bare contract: money now, shares later, no interest, no maturity. Indian company law has no shelf for that contract, so the iSAFE – popularised by 100X.VC from 2019 – delivers SAFE-style economics on instruments Indian law does recognise: almost always CCPS, occasionally a convertible note for DPIIT startups. That one design fact drives everything else: what an iSAFE can promise, what it must carry (a maturity date, a nominal dividend), and where it fits against a plain CN or priced CCPS.
US SAFE vs iSAFE: the honest comparison
| Feature | US SAFE | Indian iSAFE |
|---|---|---|
| Legal form | Standalone contract; neither debt nor equity until conversion | CCPS (or CN) – a real security on the cap table from day one |
| Maturity | None – can sit forever | Must exist: CCPS carries a compulsory conversion long-stop (max 20 years under s.55; iSAFEs typically 3–5 years) |
| Interest/dividend | None | Nominal preference dividend (typically 0.0001–0.001%) because preference shares must state one |
| Issue formalities | Sign and wire | Full private placement: valuation report, special resolution, PAS-4/PAS-3, stamp duty |
| Minimum ticket | None | None on CCPS rails (the ₹25 lakh floor applies only to the CN variant) |
| Shareholder status | Not a shareholder until conversion | A shareholder (preference class) immediately |
| Foreign investors | – | CCPS = FDI equity instrument: pricing certificate + FC-GPR in 30 days apply at issue |
How the conversion economics work
Commercially the iSAFE mirrors SAFE terms: conversion at the next qualified round at a discount (15–25% typical) and/or under a valuation cap, whichever favours the holder; a long-stop conversion at an agreed floor valuation if no round arrives by maturity; and standard exit provisions (conversion or 1x return priority on a sale event, riding on the CCPS liquidation preference). Because the vehicle is CCPS, the anti-dilution and preference mechanics of the eventual priced round attach naturally at conversion – the iSAFE-holder typically converts into the same class as the new round’s investors. Since the conversion ratio of a CCPS must be determinable at issue, the discount/cap formula is written into the terms of issue – and for foreign holders the effective conversion price must respect the FEMA floor set by the issue-date fair value.
Tax treatment
Clean, because the instrument is a recognised security: nothing taxable at subscription (angel tax is gone for FY 2024-25 onward issues and not re-enacted in the Income-tax Act 2025); the nominal dividend, if ever paid, is ordinary dividend income; conversion of the CCPS into equity is not a transfer (s.70, old s.47(xb)) so no tax event at conversion; the holding period runs from the original CCPS allotment, so an iSAFE held 18 months plus converted equity held 8 months sells as a long-term asset at 12.5% LTCG. A bespoke US-style SAFE contract signed by an Indian company enjoys none of this certainty – its enforceability and tax character are both open questions, which is precisely why the market standardised on CCPS rails.
When to use an iSAFE (and when not)
Use it for: first cheques of ₹5–25 lakh where the CN’s ₹25 lakh floor blocks a plain note; rounds with many small angels wanting identical standardised terms; pre-DPIIT companies that cannot issue CNs at all. Skip it for: rounds with an institutional lead already pricing the company (do priced CCPS properly); bridges inside an existing investor group (a CN is lighter if you are DPIIT-recognised and cheques clear ₹25 lakh); and any situation where the investor genuinely believes they are buying a US-style SAFE – align expectations on maturity and shareholder status before signing, not after. The one-page routing logic is in the instrument chooser, and where this sits in the journey is the angel round guide.
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Talk to an expertFrequently Asked Questions
Is an iSAFE safer for founders than a priced round?
It defers the valuation argument, which helps when evidence is thin – but caps and discounts are still real dilution, just invisible until conversion. Model the conversion at two or three plausible next-round valuations before signing; a low cap on a big subsequent round can dilute more than pricing today would have.
Can foreign investors or NRIs subscribe to an iSAFE?
Yes – as CCPS it is a standard FDI equity instrument: fair-value pricing certificate at issue, FC-GPR within 30 days, sectoral caps and PN3 screening apply. NRIs can alternatively subscribe on a non-repatriation basis for domestic treatment.
What happens if no funding round ever comes?
The long-stop clause governs: conversion at a pre-agreed floor valuation on the maturity date is the standard outcome (the CCPS must convert – it cannot be redeemed like a repayable note). This is a structural difference from both the US SAFE (sits forever) and the CN (can be repaid) – make sure the floor valuation is one you can live with.
Does an iSAFE need DPIIT recognition?
Not on CCPS rails – any private company can issue CCPS. Only the convertible-note variant requires DPIIT recognition. This makes the iSAFE the practical “SAFE-like” option for companies that have not yet obtained recognition.
Last reviewed: July 2026. Companies Act 2013 (ss.42, 55, 62), FEM (NDI) Rules 2019, Income-tax Act 2025; iSAFE market practice per 100X.VC-style standard documents.