About the Sharia Compliant Simple Security
The OQAL Note is an innovative new structure that can revolutionize early-stage funding in the MENA region.
The OQAL Note is the first standardized Shari’ah-compliant financing mechanism modeled on start-up funding instruments, such as the 500 Startups KISS and YCombinator SAFE, in which an initial investment is structured as a debt before being converted into equity at a future point. The three key advantages of the OQAL Note are:
- Its compatibility with Islamic Shari’ah principles
- Its availability in both Arabic and English languages
- Its conformity under both the Saudi and English legislative systems.
This Note offers investors and start-ups alike a genuine solution to streamline and simplify financing rounds while transacting on a compliant basis. The OQAL Note is a unique solution where the financing will be converted into future equity (similar to existing convertible instruments such as the SAFE or a KISS), but underpinned by first-of-a-kind, Shariah-compliant standardized documentation.
What is a Convertible Note
or an Agreement for Future Equity?
Convertible notes and agreements for future equity (e.g. KISS, SAFE, etc.) are fundraising and investment instruments commonly used in early-stage investments into startups. They are legal documents issued by the start-ups and signed by the investor(s) pursuant to which the investor will provide financing in exchange for the promise to receive shares in the start-up in the future, once the start-up reaches or satisfies specific agreed-upon stage or terms.
How is OQAL Note Structured?
The OQAL more closely follows the form of a KISS (a form of convertible note prepared by 500 Startups). Certain structural, legal and commercial changes were implemented in order for the OQAL to be compatible with Saudi Arabian legal and regulatory framework and Islamic Sharia.
How is the OQAL Note Structured
to be Sharia Compliant?
The note is structured to have two main parts:
Qard Hassan is a non-interest bearing note agreement. The form of the Qard Hassan derived from the commonly-adopted KISS to provide familiarity to investors, founders and start-ups.
Promise to Sell Shares
A standardized document that includes the “conversion” mechanics to ensure that the investor has the right to convert the qard into shares upon the occurrence of future events.