Definition
Compulsorily Convertible Preference Shares (CCPS)
CCPS are preference shares that must convert into equity shares by a fixed date or event, widely used by VCs investing in Indian startups.
CCPS are the favoured instrument for venture investment in India because, under FEMA, they are treated as equity for foreign-investment purposes while letting investors negotiate a conversion ratio that carries economic and control rights until conversion. They typically convert at an IPO or after a set period.
Using CCPS lets investors hold liquidation preferences and anti-dilution protection through the conversion mechanism. Compulsorily convertible debentures (CCDs) serve a similar role on the debt side.
Related terms
- Anti-Dilution ProvisionAn anti-dilution provision protects investors from dilution if the company later raises money at a lower price than they paid.
- Preferred Shares (Startup)Preferred shares are the class of equity VCs typically receive, carrying special rights such as liquidation preference and anti-dilution over common shares.
- Convertible NoteA convertible note is short-term debt that converts into equity at a future financing round, typically at a discount or valuation cap.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.