The OQAL Note: Saudi Arabia's Sharia-Compliant Alternative to the SAFE

A founder raising capital in Saudi Arabia faces a problem that their counterpart in Dubai does not. The standard early-stage convertible instruments, the YC SAFE and the KISS, were designed for US legal and financial frameworks. Applying them in a Saudi context runs into a structural obstacle: Islamic finance principles prohibit interest-bearing arrangements, and most standard convertible instruments are built around interest economics in some form.

The OQAL Note was developed to solve that problem. This post explains what it is, how it works, and when a Saudi-based founder should use it instead of a standard SAFE. It sits alongside our broader guide to SAFE notes in the GCC and the full guide to raising capital in the GCC.

What the OQAL Note is

The OQAL Note is a standardised, Sharia-compliant financing instrument developed by OQAL, the Saudi and Bahrain angel investor network, in collaboration with the Saudi Venture Capital and Private Equity Association. King & Spalding served as legal counsel on its establishment. It is the first instrument of its kind in the region: a convertible note built specifically for early-stage Saudi startups that functions within Islamic finance principles.

The underlying structure is a Qard Hassan, a non-interest-bearing loan in Islamic finance. Rather than carrying an interest rate that accrues until conversion or repayment, the OQAL Note structures the initial investment as a benevolent loan that converts into equity when a triggering event occurs, typically a priced equity round. The conversion mechanics, including valuation caps and discounts, work similarly to what founders and investors are used to in a standard SAFE or KISS. The difference is the financial and legal architecture underneath.

The instrument is available in both Arabic and English and is structured to be enforceable under both Saudi law and English law. That dual-system compatibility matters in practice. Many Saudi startups have investors from outside the Kingdom, and documentation that only functions under Saudi law creates friction with international investors who need English-law governed instruments for their own compliance purposes.

How it differs from a SAFE

The OQAL Note and the YC SAFE share a similar commercial purpose: give investors a right to future equity without requiring a full priced round today. The mechanics at conversion — cap, discount, pro-rata — are recognisable across both instruments.

The structural differences are what matter for Saudi founders.

A standard SAFE is not debt. It carries no repayment obligation and no interest. That simplicity is part of its appeal. The OQAL Note, by contrast, is structured as a Qard Hassan, which is a form of debt — specifically a non-interest-bearing loan. This distinction has legal and accounting implications. The initial investment sits on the company's balance sheet differently than a SAFE would, and the conversion event resolves a debt obligation rather than a purely contractual right to future equity.

In practical terms, most Saudi founders and investors do not experience this distinction as a significant operational difference. The conversion mechanics are familiar, the documentation is relatively clean, and the Sharia compliance removes the objection that would otherwise stop observant investors from participating. For founders raising from angel networks and family offices in Saudi Arabia where Sharia compliance is expected or required, the OQAL Note removes a barrier that a standard SAFE cannot.

The OQAL Note is more closely modelled on the KISS than on the YC SAFE in terms of structure. This is worth knowing if you are a founder who has reviewed standard SAFE documentation and expects the OQAL Note to read similarly — there are differences in how investor protections are framed, and reviewing the actual template before you negotiate is worth the time.

When to use it

The OQAL Note is most relevant in two situations.

The first is when your investor base is primarily Saudi-based angel investors or family offices who require Sharia-compliant documentation. In that context, presenting a standard YC SAFE creates an immediate compliance question that will slow down or block the investment. The OQAL Note resolves that without requiring investors to accept an instrument they are unfamiliar with or uncomfortable signing.

The second is when your company is incorporated onshore in Saudi Arabia rather than in a free zone or offshore jurisdiction. For onshore KSA-incorporated companies, the OQAL Note's dual Saudi and English law compatibility provides a cleaner foundation than trying to adapt a US or ADGM-drafted SAFE to a Saudi corporate structure.

If your company is incorporated in ADGM or DIFC and you are raising from investors who are comfortable with standard SAFE documentation, a well-adapted SAFE remains a workable instrument even for rounds that include Saudi investors. The OQAL Note becomes more relevant as your investor base becomes more concentrated in Saudi Arabia and as the Saudi regulatory environment plays a larger role in how your company operates.

What to negotiate before you sign

The same principles that apply to a SAFE apply here. The valuation cap is the term that determines most of the economics at conversion, and it should reflect where you realistically expect to raise your next priced round with enough headroom that the conversion does not produce disproportionate dilution.

Pro-rata rights should not be granted automatically to every investor in the round. Reserve them for lead investors committing meaningful capital. Granting pro-rata to every participant in an OQAL Note round creates the same cap table complications at Series A that over-broad pro-rata in a SAFE round creates.

The dual-language documentation requires attention to which language version governs in the event of a conflict. Make sure this is clearly specified in the instrument and that your legal counsel has reviewed both versions, not just the English one.

Finally, apply the same discipline around stacking that applies to SAFEs. The OQAL Note is a pre-seed and seed instrument. Two caps maximum, then a priced equity round. The Sharia-compliant structure does not change the underlying logic: convertible instruments defer complexity rather than eliminate it, and that deferred complexity lands on your cap table at the worst possible time if you let it accumulate across too many rounds.

Work with Dopamine on your KSA raise

If you are structuring an early-stage raise in Saudi Arabia and working through which instrument is right for your investor base and corporate structure, the Term Sheet Strategy session covers convertible instruments in both the UAE and KSA context in detail.

FAQ

Is the OQAL Note available outside Saudi Arabia?The instrument was designed with Saudi Arabia and Bahrain in mind and is most commonly used in that context. Its dual Saudi and English law structure means it can be used by companies with cross-border investor bases, but it is not the standard instrument for UAE-incorporated companies raising in ADGM or DIFC. For those companies, a well-adapted SAFE remains more appropriate.

Do I need to use the OQAL Note if I am raising from Saudi investors?Not necessarily. If your company is incorporated in ADGM or DIFC and your Saudi investors are comfortable with English law documentation, a standard SAFE can work. The OQAL Note becomes more important when investors require Sharia-compliant documentation, when your company is incorporated onshore in Saudi Arabia, or when the majority of your investor base expects Arabic-language instruments.

How does the Qard Hassan structure affect conversion?In practical terms, the conversion mechanics — cap, discount, triggering events — work similarly to what you would see in a standard SAFE or KISS. The Qard Hassan structure affects how the initial investment is classified on the balance sheet and how the debt-to-equity conversion is treated under Islamic finance principles, but the commercial outcome at conversion is broadly comparable. Take specific advice from counsel familiar with both Islamic finance and venture transactions before signing.

Can I use both a SAFE and an OQAL Note in the same round?Technically yes, but it creates complexity. Different instruments with different legal underpinnings converting in the same round means different conversion calculations and potentially different investor rights. If you are raising from a mixed investor base — some requiring Sharia compliance, some not — the cleaner approach is to standardise on one instrument and take legal advice on how to structure it to satisfy both groups.