Transacting investment from India to?the US

Note - this article is deprecated!

I am sharing a recent incident to help other non-Indian companies who are raising from Indian investors via SAFE notes.

Let me set some context. I have been raising angel money smoothly so far from investors in India and the US.

• Our company is incorporated in Delaware, US.
• We use standard pre-money YC SAFE notes for raising funds.

Recently in Sep 2021, we hit a snag. Banks refused the remittance from investors in India to our US company. They cited a recent change by RBI -

This investment in Simple agreement for future equity (SAFE) is not permissible under LRS as per extant guidelines.

I posted this query on the IIT B founders group and learned that many founders and investors are struggling with this problem. I heard various hacks to get the investment through. However, these hacks didn't feel right.

I wanted to create a document similar to the SAFE that adheres to all the RBI guidelines. For that, I got all the stakeholders in a room -

• HDFC bank team, Sweta & Rahul, who handle startups, RTFX & RBI compliances. Thanks to Aman for the connection.
• A friend and a finance professional for compliance in the US - Vasanth
• A good legal firm in India, Legalogic, to represent my company's interest.
• Legal teams of two of my seasoned angel investors to ensure investors' interest.

Highlights -

• RBI doesn't allow future equity, & hence doesn't allow SAFE.
• RBI allows debt or equity with the transaction. Live in the present! I didn't want the messy pricing round right now. The only other option was the debt route that has an option to convert to equity in the future (Compulsory Convertible Debentures).
• When transacting, investors have to mention the purpose code?S0002 under LRS:?Indian Portfolio investment abroad – in debt instruments.
• Post?conversion into equity?- The share certificate needs to submit at the branch by the investor.?

We tried the transaction. My investors wired the money online via HDFC bank. When prompted, they provided the new agreement.

And...

The transaction went through!

Here is the agreement. Review/use at your risk. Use your own legal team to vet it.

I hope investors from India do not miss out on opportunities outside India, and entrepreneurs can get a jump start in their agreement process. Please do comment if this helped you.