CCPS Term Sheets: Conversion, Preferences, Anti-Dilution and Exit Rights

A CCPS term sheet can allocate value very differently from ordinary equity even where both show the same ownership percentage. Promoters should ask for worked examples of the clauses that change distributions and conversion.

Commercial buildings in Gurugram, illustrating business investment

Image: Cyber city Gurgaon by Daksh Sammi; CC BY-SA 4.0. Unmodified, illustrative photograph.

Conversion

Identify when preference shares convert, the calculation and the effect of later securities. For foreign investment, qualifying fully mandatory conversion and upfront pricing requirements need to be checked under RBI’s equity-instrument framework. Do not assume that an optional redemption feature is harmless.

Liquidation preference

A preference determines an agreed priority in relevant distributions, subject to the applicable law and documents. A non-participating preference commonly involves choosing between a preference amount and an as-converted share; a participating structure may provide additional participation. Actual drafting controls.

Illustratively, an investor putting in ₹20 crore for 20% with a 1x non-participating preference could receive ₹20 crore from a ₹50 crore equity exit rather than ₹10 crore on a simple pro-rata calculation, assuming the agreed trigger and waterfall apply. At a ₹200 crore exit, conversion could produce ₹40 crore. This is a simplified contractual example, not a statutory waterfall or guaranteed recovery.

Anti-dilution

Ask how a lower-priced future issue changes conversion. Full-ratchet and weighted-average mechanisms can have very different effects. Specify exclusions, the share-count basis and interaction with employee options. Run the formula using a genuine downside round.

Exit and governance

Review put, call, drag, tag, board and reserved-matter clauses together. A restriction in one document can undermine a right in another. Foreign-investor exit terms also require FEMA review; a preferred instrument does not automatically permit an assured return.

A practical signing standard

Before agreeing, request a one-page comparison showing:

  • Ownership on immediate and later conversion.
  • Distribution at low, base and high exit values.
  • Dilution after a lower-priced round.
  • Matters requiring investor consent.
  • Obligations if the anticipated exit does not happen.

Have the final model checked against the actual clauses. The purpose is to understand how the bargain behaves when the business falls short, not merely how it looks when every projection is achieved.

Connect with Monei Matters

Discuss the financial implications of a CCPS proposal with Monei Matters before final legal documentation.

Monei Matters
B-9, Near City Centre Market, Ramprastha, Ghaziabad, Uttar Pradesh 201011
Phone: +91 93138 03227 / +91 93110 03227
Website: www.moneimatters.com

Services include business finance, working capital, commercial mortgage/LAP, lease rental discounting, debt syndication, restructuring, settlements, FDI advisory and equity syndication.

Disclaimer

General information based on sources reviewed for the position as at 10 September 2026; not transaction-specific legal, tax or investment advice. Illustrations are hypothetical. Applicable law, documents and lender or investor terms govern each case; funding and settlement outcomes are not guaranteed.

Sources

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