CCD Rounds: What, When, How?

A number of startups seem to be doing "CCD Rounds". What exactly are they? How are they different from a regular funding round? "CCD" is short for "compulsorily convertible debentures". CCDs are one of the types of instruments that foreign investors are permitted to invest in as FDI (under exchange control laws, CCDs are considered as 'equity instruments')

A CCD Round, as the phrase is commonly used, is essentially an unpriced round. In an unpriced round, the exact pricing of the investment is usually deferred to the next round of financing (i.e., the valuation of the CCDs will be determined based on the valuation at which the next round of funding is raised by the Company). At the time of valuation determination, the CCD is usually converted to convertible preference shares (CCPS), along with the CCPS issued in the next round.