The term sheet arrives and every founder's eye jumps to one number — the valuation — while the document's real economics hide in clauses with boring names: preference, anti-dilution, pool shuffle, drag-along. Investors negotiate these weekly; founders see them thrice in a lifetime. This is the founder's translation guide: what each clause does, what's standard in India, and where pushing back matters.
The economics cluster
- Valuation & the pool shuffle: 'pre-money ₹40 crore including a 10% post-round ESOP pool' means the pool comes out of your side — effective dilution is higher than the headline. Model the cap table post-round, not the adjectives
- Liquidation preference: '1x non-participating' (standard, fair) returns the investor's money first, then everyone shares by ownership. Fight 'participating' preference (double-dipping) and multiples >1x — they quietly confiscate modest exits
- Anti-dilution: protection if you later raise cheaper. 'Broad-based weighted average' is standard; 'full ratchet' (reprices their entire holding to the down-round price) is a founder-killer worth serious resistance
- Dividends: usually notional/accruing-if-declared in India; watch cumulative compulsory dividends in debt-flavoured structures
The control cluster
Board composition: seed/Series A norms give the lead a seat on a 3–5 person board with founders retaining majority early — guard the trajectory across future rounds, since boards fire CEOs. Reserved matters (veto rights): the list of decisions needing investor consent — budgets, senior hires, new rounds, exits, related-party deals. A reasonable list protects investors; an expansive one (vetoes on operating spends, hiring below CXO) converts the founder into an employee — negotiate the list item by item, and the consent threshold (lead investor vs all investors) matters as much as the list. Information rights: MIS/audit access — standard and honestly good discipline. Founder lock-ins: vesting on founder shares (yes, again, even yours) and transfer restrictions — standard; negotiate the vesting credit for time already served and acceleration on exit events.
Drag-along: majority (usually investor-side) can force everyone to sell in an approved exit — standard, but negotiate the threshold and a price floor. Tag-along: your right to sell alongside investors — insist on it symmetrically. Exit rights/put options: clauses obliging the company/founders to provide exits by year X (buyback obligations, QIPO commitments) — read personally-guaranteed exit obligations as the alarm bells they are; founders should never personally underwrite investor returns.
Process clauses and the fine print
- Exclusivity/no-shop (30–60 days standard): fine, but time-box it — indefinite exclusivity kills your leverage while diligence dawdles
- Conditions precedent: the closing checklist (compliance fixes, key-man insurance, articles amendment) — pre-clean your diligence room to keep CPs short
- Reps, warranties & founder indemnities: company-level standard; cap founder-personal indemnities in amount and time, and push fraud-only carve-outs
- Binding vs non-binding: most term sheets bind only on exclusivity/costs/confidentiality — the real negotiation continues into definitive docs (SHA/SSA), where every clause here reappears with lawyers attached
- Costs: investor legal costs charged to the company are customary — cap the number
Negotiating like it matters
Leverage comes from alternatives and preparation, not aggression: run a process (two term sheets change every conversation), know your walk-away on the three clauses that actually bind your future (preference structure, veto list, exit obligations), trade rather than beg (accept a fair drag threshold for a cleaner veto list), and hire a lawyer who does venture deals weekly — their fee is rounding error against one bad clause. And remember the meta-rule: the investor you choose matters more than any clause; references from their portfolio founders — especially from companies that struggled — are the diligence that protects you where drafting can't.
How Aidwish helps
Aidwish supports founders through fundraises — term-sheet economics modelling (real dilution, exit waterfalls), clause benchmarking against India norms, diligence-room preparation and coordination with venture counsel — so the deal you sign is the deal you think you signed.