A term sheet is two pages of economics and six pages of control – and founders negotiate the wrong two pages. Valuation gets the attention; liquidation preference, anti-dilution, vetoes and vesting decide who actually gets what, and when. This decoder walks every standard clause in an Indian VC term sheet, states the 2026 market norm for each (practitioner-observed, not survey data), and flags the asks that are off-market enough to push back on. Read it before the negotiation call, not after.
The economics clauses
| Clause | What it does | India market norm (2026) | Push back when |
|---|---|---|---|
| Valuation (pre/post) | Sets the price – but check what “pre-money” includes | Pool top-up inside pre-money | The pool ask exceeds an actual 18-month hiring plan |
| Liquidation preference | Who is paid first on exit/winding-up | 1x non-participating | Participating, or any multiple above 1x, outside distress |
| Anti-dilution | Protects investor price in a down round | Broad-based weighted average | Full ratchet – and for foreign investors it collides with the FEMA conversion floor anyway (see the down-round guide) |
| ESOP pool | Option pool size and where its dilution lands | 10–15% at seed, 12–18% at A, created pre-money | >18% without a hiring plan; model it on the dilution calculator |
| Pro-rata rights | Investor’s right to maintain % in future rounds | Standard for the lead | Super pro-rata (rights to increase %) at seed |
| Dividends | Preference dividend rate | Nominal 0.0001–0.001%, non-cumulative | Cumulative dividends at venture stage |
The control clauses
Board composition: seed – founders plus at most one investor director or an observer; Series A – typically 2 founders + 1 investor director + optional independent. Boards where investors outnumber founders before Series B are off-market. Reserved matters (the veto list): 15–25 items is normal – new share issues, SHA amendments, M&A, borrowings above thresholds, budgets, related-party deals, senior hires, liquidation. A 40-item list, or vetoes over ordinary-course operations (pricing, hiring below CXO, vendor contracts), converts a minority investor into a manager – negotiate thresholds, not the existence of the list. Information rights: monthly MIS within 15–30 days, quarterly statements, annual audited accounts and budget – standard and honestly useful; the discipline it forces is covered in the post-round guide. Founder lock-in and vesting: reverse vesting over 4 years with a 1-year cliff is standard; the negotiable part is credit for time already served – a founder three years in who accepts a fresh 4-year schedule with no credit has accepted an off-market term. Also negotiate the leaver provisions: “cause” should be defined narrowly, and good-leaver treatment should keep vested shares.
The exit clauses
Tag-along: if promoters sell, minority investors may join at the same price – standard, uncontroversial. Drag-along: a supermajority (typically investors holding ~75%, often with board approval) can compel everyone to sell. Negotiate the floor: a minimum price (commonly a multiple of the preference) and a time bar (no drag in the first 3–4 years). Exit rights / liquidity: Indian term sheets typically promise “best efforts” towards IPO/strategic sale in 5–7 years, with a buyback shoulder – remember two legal walls: FEMA bars assured exit prices for foreign investors entirely, and buybacks now carry the FA-2026 regime (capital gains, with a promoter surcharge – see the capital gains map). Any clause guaranteeing a foreign investor a fixed-IRR exit is unenforceable as written – do not trade real terms for it.
The mechanics clauses
Conditions precedent: diligence completion, cured filings, key-man insurance, ESOP ratification – keep the list finite and dated. Exclusivity: 30–45 days is fair; 90 days hands the investor a free option over your raise – resist, or make it fall away if they miss internal-approval dates. Instrument: almost always CCPS (the instrument guide covers why); confirm the conversion formula is FEMA-compliant if the investor is offshore. Binding vs non-binding: the investment terms are non-binding; exclusivity, confidentiality and costs are binding – read those three as contracts, because they are. Costs: investor’s legal/DD costs charged to the company at closing – cap the number (₹5–15 lakh is the Series A range).
After the term sheet
Signature starts the clock: diligence (the checklist), long-form documents – the SHA and SSA where every term-sheet line becomes twenty clauses (the SHA guide decodes them) – and the statutory closing sequence with its 60-day and 30-day traps (the closing checklist). Term-sheet-to-money is realistically 6–10 weeks in India when the data room is ready on day one.
Term sheet on the table?
My Cloud Accountant models the offer through your cap table and exit waterfall, and works with your counsel on the push-backs that matter.
Talk to an expertFrequently Asked Questions
Is a term sheet binding in India?
The investment terms are expressly non-binding; exclusivity, confidentiality and cost clauses are binding contracts. Walking away from a signed term sheet is legal but reputational – the Indian VC market is small and lead partners talk.
What does 1x non-participating actually mean at exit?
The investor takes the higher of (a) their money back, or (b) their as-converted equity share – not both. Example: ₹10 crore invested for 20%; company sells for ₹40 crore → as-converted gives ₹8 crore, preference gives ₹10 crore → investor takes ₹10 crore, everyone else splits ₹30 crore. Participating preference would take ₹10 crore plus 20% of the remainder – which is why it is a red flag.
Can we negotiate reserved matters after signing the term sheet?
The list usually appears in outline at term-sheet stage and in full in the SHA draft – that is where the real negotiation happens. Agree the principle at term sheet (“customary reserved matters with agreed thresholds”) and fight the line items in the SHA with counsel.
Do angel rounds need term sheets?
Lighter ones – a 2–3 page note covering instrument, price/cap, pool, information rights and board observer status. Importing a full Series A term stack into an angel round overweights the paperwork; see the angel guide for what is customary at that stage.
Last reviewed: August 2026. Norms stated are practitioner-observed Indian market practice for seed/Series A (2025-26), consistent with published practitioner commentary; individual deals vary.