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Startup ecosystem · Cap Table

CCPS: what preference shares really mean at exit

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  1. Facts

    CCPS (Compulsorily Convertible Preference Shares) is the most common investment instrument in Indian startups. They look like equity but have preference rights, specifically on liquidation.

  2. Provisions and law

    • Companies Act 2013, Sec 43, 55 | IT Act Rule 11UA

  3. Analysis

    Liquidation preference: 1× non-participating means at exit, CCPS holders get their investment back first (1×), then convert and share in remaining proceeds OR just convert and take their equity share, whichever is higher. 2× participating = investor gets 2× investment back AND keeps their equity share. Never sign 2× participating. Anti-dilution: If you raise your next round at a lower valuation (down round), BWRA (Broad-Based Weighted Average) anti-dilution adjusts the CCPS conversion ratio to compensate investors. Full ratchet = catastrophic for founders.

  4. Conclusion

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