What is a liquidation preference?

A liquidation preference determines who gets paid first when a company is sold or wound up. A 1x non-participating preference (standard for India) means investors recover their investment amount before founders see anything; participating preferences let investors take their amount AND a share of the rest.

What is anti-dilution protection?

Anti-dilution protects investors if the company raises a later round at a lower valuation. Full ratchet reprices the investor's shares down to the new price (founder-unfriendly); weighted average (standard) adjusts the price proportionally.

What is a standard vesting schedule in India?

The standard is 4-year vesting with a 12-month cliff for founders: no equity vests in the first year, then 25% vests at month 12, with the rest vesting monthly. This protects investors from founders leaving early with full ownership.

Is a term sheet legally binding in India?

The term sheet itself is generally non-binding (except for confidentiality, exclusivity/no-shop, and costs clauses, which are binding). The binding obligations live in the Share Subscription Agreement (SSA) and Shareholders Agreement (SHA).

Startups · July 2026 · 2026-07-31

Term Sheet Negotiation for Indian Founders: Every Clause Decoded

The term sheet is where Indian founders lose the most money — not because investors are predatory, but because founders sign standard forms without decoding the clauses. The good news: term sheets are templates. The bad news: the template is written by investors, for investors.

Here is every major clause in an Indian term sheet, decoded with founder strategy.

1. Valuation and Pre-Money vs Post-Money

Pre-money valuation is the company's value before the investment; post-money includes the new money. A ₹20 crore investment at ₹80 crore pre-money = ₹100 crore post-money, and the investor owns 20%. Indian SAFE-style notes and priced rounds both live and die on this number — know which one the term sheet states.

2. Liquidation Preference

The clause that decides who gets paid first on exit. In India, 1x non-participating is the market standard and founder-fair: investors get their money back first, then remaining proceeds split by ownership. Watch for:

Participating preference — investors take their 1x AND a pro-rata share of the rest (double-dip). Resist it; point to market standard.
Multiples — 1.5x or 2x preferences on later rounds. Negotiate down to 1x.
Seniority — who gets paid first when multiple investor classes exist (Series A vs B).

3. Vesting: The 4-Year Standard

Founder equity vests over 4 years with a 12-month cliff: nothing vests in year one, then 25% vests at month 12, with the remainder vesting monthly. Negotiable points: accelerated vesting on acquisition (double-trigger acceleration is founder-friendly), and whether existing founder shares vest retroactively (they should).

4. Anti-Dilution

If a later round prices lower than yours, anti-dilution reprices the investor's shares. Weighted average (broad-based, standard in India) is fair; full ratchet (reprices everything to the new low) is a founder trap. Refuse full ratchet outright and use the standard NVCA/IVCA template as your reference.

5. Board Composition and Reserved Matters

Standard Indian structure: 5 seats — 2 founder, 2 investor, 1 independent. Investor veto rights ('reserved matters') on major decisions (fundraising, acquisition, large debt, budget deviations) are normal — but the list should be explicit and finite, not open-ended. Every reserved matter is a future veto you will have to work around.

6. No-Shop and Exclusivity

Binding immediately, the no-shop clause stops you from talking to other investors for 45–90 days. Negotiate: shorter window, a fiduciary out (you can accept a superior offer if the board approves), and ensure the investor has a defined timeline to close — otherwise exclusivity protects a non-committed investor.

7. Non-Binding vs Binding Terms

In India, the term sheet is non-binding except for three things: confidentiality, exclusivity/no-shop, and costs. The real contract is the Share Subscription Agreement (SSA) + Shareholders Agreement (SHA). Lawyers cost ₹1–5 lakh for a priced round — and that is the one legal spend worth every rupee. Have a lawyer who has done Indian startup rounds, not your family CA.

Where AI Legal Tools Fit In

Before you sign, run the term sheet through ContractIQ to flag unusual clauses and cross-reference standard Indian practice, ask LexCounsel AI to explain any clause in plain language with statutory citations, and keep negotiation correspondence organised and encrypted in the Legal Vault. Founders who understand the paper negotiate 2–3x better outcomes — on valuation, preferences, and control.