Nothing scares first-time Indian founders more than receiving their first term sheet.Most end up asking "What are term sheets?"
Nothing scares first-time Indian founders more than receiving their first term sheet.Most end up asking "What are term sheets?"
You finally get that email saying “We’d like to invest.” Then comes the 6–8 page document full of legal jargon, and suddenly you feel like you’re signing your company away without understanding what half the clauses mean.
This is the straight-talk guide every seed-stage founder in India needs. We’ll walk through every important clause in a typical 2026 term sheet — what it actually means, why it matters, and what to negotiate or accept.
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1. A term sheet is mostly non-binding (except for exclusivity and confidentiality).
2. Everything is negotiable until you sign the final Shareholders’ Agreement (SHA) and Subscription Agreement (SSA).
3. Never sign without a good startup lawyer. In India, ₹40k–80k for a term sheet review is money extremely well spent.
Pre-money valuation: What your company is worth before the new money comes in.
Post-money valuation: Pre-money + investment amount.
Example: ₹12 Cr pre-money + ₹3 Cr investment = ₹15 Cr post-money. You are giving away 20% of the company.
This decides who gets paid first if the company is sold or shut down.
Most common & founder-friendly at seed in India: 1x Non-Participating. Investor gets their money back first, then the rest is shared pro-rata.
Red flag: Participating (double dip) or 2x+ preference.
Protects the investor in a future down round.
Standard & acceptable: Broad-based weighted average.
Red flag: Full ratchet (very punitive).
How many board seats the investor gets and what veto rights they have on major decisions.
At seed: Usually 1 investor seat is reasonable. Watch for excessive veto rights on day-to-day operations.
Founders’ equity usually vests over 3–4 years with a 1-year cliff. This is normal and protective for the company.
Negotiate “good leaver” provisions for health/family reasons.
Drag-along lets majority force a sale. Tag-along lets you join on the same terms. Both are standard if thresholds are reasonable (usually 50–75%).
Investor gets first chance to buy shares or participate in future rounds, plus regular financial updates. Standard, but keep reporting reasonable.
You can’t talk to other investors for 30–60 days. Conditions precedent are things that must happen before money is wired (DPIIT, audits, etc.). Keep timelines realistic.
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Seeing actual documents helps more than any explanation. Here are solid references (some India-specific, some global but widely used):
Pro tip: Compare any term sheet you receive against these clean templates. If something deviates significantly, ask why — and get your lawyer involved immediately.
1. Read it twice.
2. Mark every clause you don’t fully understand.
3. Compare it with the clean templates above.
4. Send it to a startup-experienced lawyer immediately.
Getting the term sheet is exciting. Understanding it properly — and negotiating the right terms — is what keeps you in control of your company.
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