Q. You recently launched 100X.VC, an early stage venture fund, through which you plan invest in 100 startups over a year using ‘iSafe’ notes. What are iSafe notes?
‘iSafe’ stands for India Simple Agreement for Future Equity. It is a convertible instrument that an investor [iSafe note holder] gets in return for making a cash investment in a startup. Like an option or warrant, an iSafe note allows the investor to buy shares in a future priced round. It is automatically convertible into equity shares, either on the occurrence on specified liquidity events such as a next pricing or valuation round, dissolution, merger or acquisition; or at the end of three years from the date of issue, whichever is earlier.

Q. So how is an iSafe note different from a traditional convertible note?
A convertible note is debt, while an iSafe note is a convertible security that is not debt. Startups prefer iSafe notes because, unlike convertible notes, they are not debt and therefore do not accrue interest. Neither is it equity—though for legal compliance purposes, iSafe note carry a non-cumulative dividend @ 0.0001%. If the startup fails, whatever money is left after discharging other liabilities will be returned to iSafe note holders, in preference over the equity shareholders, until iSafe note holders receive their investment amount. Such liability is on the company, not on the founder individually.


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