CCPS (Compulsorily Convertible Preference Shares) are the standard investment instrument used by venture capital funds in India. They are preference shares that *must* convert into ordinary equity shares upon a specified trigger — typically an IPO, a qualifying sale, or a fixed date. Until conversion, they carry preferential rights over ordinary shares.
Why VCs use CCPS instead of ordinary equity
Indian company law and FEMA regulations make CCPS highly flexible for VCs:
- Downside protection: carry a fixed liquidation preference
- Upside participation: convert to ordinary equity at IPO, sharing in the full upside
- Anti-dilution: CCPS often carry weighted-average anti-dilution ratchets
- Voting rights: can be structured with or without voting rights before conversion
Why it matters for unlisted shares
When you buy ordinary shares in a VC-backed company, you sit below CCPS holders in the capital stack. On a good exit (IPO or sale at a premium), CCPS converts and everyone benefits. On a poor exit, CCPS liquidation preferences can leave ordinary holders with little.
Reading a company's cap table to see how many outstanding CCPS exist — and their conversion terms — is essential due diligence.
Example: A Series B investor held 1 crore CCPS with a 1× liquidation preference. At IPO, they converted to ordinary shares — everyone benefited equally. Had the company sold at a loss, the CCPS preference would have paid them first.