iSAFE Explained: Founder-Friendly Startup Funding in India

Early-stage fundraising in India has historically forced founders into an uncomfortable choice. Either accept arbitrary valuations far too early in the company’s lifecycle or sign long, one-sided shareholder agreements that slow momentum when speed matters most.

This challenge is structural, not situational. At the earliest stages, startups lack the data required for precise valuation, while investors still need legal clarity and downside protection. The result is friction, delay, and misalignment on both sides.

To solve this exact problem, 100X.VC introduced iSAFE, a simple, legally compliant, and founder-friendly investment instrument designed specifically for Indian startups.

What an iSAFE Note Is and What It Is Not

iSAFE stands for India Simple Agreement for Future Equity.

An iSAFE note is a convertible security under which an investor provides capital today and receives equity in the future. The equity is issued upon the occurrence of defined conversion events, most commonly a priced equity financing round or a liquidity event.

It is important to understand what an iSAFE note is not:

• It is not debt

• It does not accrue interest

• It does not require repayment at maturity

• It is not intended to function like a loan

Unlike equity rounds, iSAFE deliberately avoids fixing valuation at the time of investment.

To comply with Indian company law, iSAFE notes are issued as Compulsorily Convertible Preference Shares (CCPS). This legal structure ensures compliance with the Companies Act, 2013, while preserving the simplicity and intent of global SAFE-style instruments.

The iSAFE framework, documentation, and standard templates were conceptualised and pioneered by 100X.VC in 2019 to address India-specific legal and startup ecosystem constraints.

Why iSAFE Exists in the Indian Context

Most Indian startups raise their first external capital when they are still at:

• Idea stage

• MVP stage

• Very early revenue stage

At this point, assigning a pre-money or post-money valuation is often speculative and can be unfair to both founders and investors.

Traditional seed funding routes also introduce additional friction:

• Lengthy shareholder agreement, seven for small cheques

• High legal and transaction costs

• Prolonged negotiations that delay capital infusion

iSAFE was designed to remove these bottlenecks by deferring valuation, simplifying documentation, and enabling faster capital deployment without compromising legal robustness.

How an iSAFE Investment Happens

From execution to accounting, the iSAFE investment flow is intentionally simple.

The startup and the investor agree on an investment amount and execute a standard iSAFE agreement using a published template. After completing basic corporate approvals and statutory filings, the investor transfers the investment amount to the company.

On the company’s cap table, the iSAFE appears as an Equity Linked Security, similar in classification to other convertible instruments such as warrants or options.

No valuation discussion is required at this stage, and no equity shares are immediately issued.

Who Issues iSAFE Notes and Who Holds Them

iSAFE notes are issued by Indian startups and are subscribed to by investors, including angel investors, syndicates, and venture capital funds.

Each subscribing investor receives iSAFE notes and is referred to as an iSAFE note holder until conversion into equity occurs.

Why Founders Prefer iSAFE for the First Cheque

Founders consistently choose iSAFE for early capital because it aligns with the realities of building a startup from zero.

Deferred valuation allows founders to avoid dilution based on incomplete information and negotiate pricing later, once the business has achieved real traction.

Simpler documentation reduces legal overhead. The standard iSAFE agreement is concise and template-driven, especially when compared to traditional shareholder agreements.

Faster closures are possible because there are fewer negotiation variables. This speed is often critical for early-stage startups operating with limited runway.

Founder-friendly economics ensure that early capital supports growth without imposing disproportionate control or punitive terms.

When and How iSAFE Notes Convert Into Equity

According to the standard iSAFE documentation, conversion happens automatically upon the earliest occurrence of defined events.

The most common trigger is a priced equity financing round, where the company raises capital at a fixed valuation. In this scenario, iSAFE notes convert into the same class of shares issued to new investors, subject to the agreed conversion mechanics.

Other conversion triggers include:

• A merger or acquisition

• An initial public offering

• A dissolution or winding up of the company

If none of these events occur within three years from the date of allotment, the iSAFE notes automatically convert based on a fair market valuation, typically determined by an independent valuer as specified in the agreement.

This three-year expiry ensures that the instrument does not remain unresolved indefinitely.

Accounting and Capital Structure Impact

Funds raised through iSAFE are recorded as Compulsorily Convertible Preference Shares in the company’s financial statements.

As a result:

• Authorised share capital must be increased if required

• Paid-up share capital increases by the investment amount

• Standard filings under the Companies Act are completed

  
  

This ensures transparency, compliance, and clean cap table treatment.

Final Perspective

iSAFE represents a structural shift in how early-stage capital is raised in India.

By removing premature valuation debates and heavy legal overhead, it allows founders to focus on what truly matters in the early days: building, iterating, and finding product-market fit.

Full credit for the creation, standardisation, and popularisation of iSAFE belongs to 100X.VC, whose work has meaningfully reshaped India’s early-stage startup fundraising landscape.