Advisorate reviews and prepares term sheets for Indian startups, translating every clause into plain language, quantifying the commercial consequences of the specific terms being proposed, identifying what is standard in India's early-stage market in 2026 versus what is aggressive, and advising on where to push back and how.
What a term sheet actually is, and what makes it different from the SHA
A term sheet is a preliminary document that sets out the key commercial and legal terms of a proposed investment. Most of its commercial terms are non-binding, they represent the investor's intent and the framework for the definitive agreements that follow, rather than a legally enforceable commitment to invest. However, several clauses within the term sheet are legally binding from the moment it is signed, and these matter enormously in practice.
Binding clauses, effective immediately on signing:
The confidentiality clause restricts both parties from disclosing the terms of the discussions and the fact of the investment conversations to unauthorised third parties. Breaching this, for example, by announcing to the press or to employees that you have signed a term sheet, can create liability before the round is closed.
The exclusivity or no-shop clause restricts the company from approaching other investors or entertaining competing offers during the exclusivity period, typically thirty to sixty days. This is the clause that creates the most practical constraint for founders because it locks you into one investor's process while the clock runs on your runway. Negotiating the exclusivity period down, or ensuring it contains carve-outs for investors who were already in active conversations before the term sheet was signed, is one of the most important early negotiation points.
The expense reimbursement clause, where present, may obligate the company to reimburse the investor's legal due diligence costs if the company walks away from the transaction. For large institutional rounds where investor legal costs can be significant, this clause can create meaningful financial exposure if the company decides not to proceed after the term sheet is signed.
The governing law clause specifies which jurisdiction's law governs disputes under the term sheet and, eventually, the definitive agreements. For Indian startups raising from Indian investors, this is typically Indian law with arbitration in Bangalore, Mumbai, or Delhi. For rounds involving foreign investors, the governing law choice has FEMA and tax implications that need to be considered. Learn more about FEMA compliance through our valuation service.
Non-binding commercial terms, but they define the SHA:
Everything else, valuation, investment amount, equity percentage, liquidation preference, anti-dilution mechanism, board composition, reserved matters, vesting schedule, information rights, drag-along and tag-along provisions, is typically expressed as non-binding but forms the basis on which the definitive SHA and SSA are drafted. Once the term sheet is signed, the SHA negotiation is a drafting exercise around these agreed commercial terms, not a fresh commercial negotiation. This is why understanding every commercial term before signing the term sheet is more important than any subsequent SHA review.
The pre-money valuation trap, why your effective valuation is lower than the headline number
This is the most commonly misunderstood calculation in Indian startup term sheets, and it has an eight to fifteen percentage point impact on founder ownership in most early-stage deals.
The ESOP pool pre-money trap:
Term sheets typically specify a pre-money valuation and an ESOP pool as a percentage of the post-money fully diluted capital. The trap is in the sequencing: the ESOP pool is created before the investment is priced, which means the dilution from the ESOP pool falls entirely on the founders, not on the new investor.
Here is how it works in numbers. Suppose a term sheet offers ₹10 crore pre-money valuation and a 10% ESOP pool on a post-money fully diluted basis, with a ₹2 crore investment. Before the ESOP pool is created, the founders own 100% of the company worth ₹10 crore. The ESOP pool is then created, diluting the founders to 90% of ₹10 crore, the effective pre-money valuation from the founders' perspective is now ₹9 crore, not ₹10 crore. The investor then invests ₹2 crore on a post-money of ₹12 crore and receives 16.67% (₹2 crore divided by ₹12 crore). The founders, after both the ESOP dilution and the investor dilution, own approximately 73.3%, not the 83.3% they would have owned if the ESOP pool had been created after the investment.
The investor's effective pre-money valuation is ₹10 crore. The founders' effective pre-money valuation is ₹9 crore because they bear the full ESOP dilution. When negotiating the term sheet, founders should either negotiate a larger pre-money valuation that accounts for the ESOP creation, or negotiate that only the incremental ESOP pool, the options that will actually be granted in the next twelve to eighteen months, is created pre-money, with the balance created in subsequent rounds when the dilution is shared with all shareholders. Learn more about our ESOP design and management service and cap table management which models this dilution precisely.
The clause-by-clause term sheet review, what we examine and what we flag
When Advisorate reviews a term sheet on behalf of a founder, we work through every clause in the following sequence, quantifying the commercial consequence of each provision before advising on the negotiation position.
Economic terms
Pre-money valuation and investment amount
We verify that the pre-money valuation in the term sheet is consistent with the valuation report prepared under the appropriate methodology for the round, particularly for FEMA-compliant rounds involving foreign investors where the issue price must be at or above Fair Market Value. We also confirm that the post-money valuation, the equity percentage being issued, and the per-share subscription price are all internally consistent and correctly calculated given the current fully diluted cap table. Learn more about our valuation service.
Instrument type, equity shares versus CCPS versus iSAFE
Indian term sheets offer investment in equity shares, Compulsorily Convertible Preference Shares (CCPS), or increasingly in iSAFEs (India-adapted Simple Agreements for Future Equity). Each has different implications for the cap table, for voting rights before conversion, for dividend rights, and for exit waterfall treatment. CCPS is the most common instrument in structured Indian seed and Series A rounds, it allows investor preference on liquidation to be structurally separated from the common equity. We explain the specific implications of the proposed instrument for your cap table and governance before the term sheet is signed.
ESOP pool size and timing As discussed above, the sequencing of the ESOP pool creation relative to the investment pricing has a direct and quantifiable impact on founder dilution. We model this specifically and advise on whether to push for the ESOP pool to be created post-money rather than pre-money, or to negotiate a reduced pre-money ESOP pool with the balance created in future rounds.
Liquidation preference structure
We model the specific liquidation preference structure being proposed, 1x non-participating, 1x participating, 2x participating, or capped participating, across a range of exit scenarios to show founders exactly what they receive under different exit valuations. As of May 2026, 1x non-participating remains the standard structure for clean rounds in India, but 2x participating has reappeared in a meaningful minority of Series A term sheets, particularly with hedge-fund-flavoured crossover investors. We flag any structure other than 1x non-participating, model the specific exit scenario consequences, and advise on negotiation. Learn more about liquidation preference on our SHA drafting page.
Anti-dilution mechanism We identify whether the term sheet proposes broad-based weighted average anti-dilution or full ratchet anti-dilution. Full ratchet is never appropriate in a well-balanced Indian early-stage deal, we flag it and recommend negotiating to broad-based weighted average as a non-negotiable position. We also model the specific dilution consequences under a hypothetical down round at the proposed mechanism to show founders what the difference means in practice.
Governance terms
Board composition
We review the proposed board structure, the number of investor director seats, whether the investor receives an observer right in addition to a board seat, the independent director appointment process and whether the independent director is truly independent or investor-nominated in substance, and the thresholds at which the investor receives additional governance rights. Typical post-seed structure in India: two founder directors, one investor director, and one independent director who is mutually agreed. Typical post-Series A: two founders, one investor, one independent. We flag any structure that gives investors board parity or majority at seed or early Series A stage as disproportionate to the investment.
Reserved matters
We review the proposed reserved matters list carefully against the company's actual operational needs. A reserved matters list that includes decisions below ₹25 to ₹50 lakhs, hiring decisions below senior management level, or routine operational changes can create an operational veto that paralyses the company's ability to move quickly. We push for reserved matters to cover only genuinely material corporate actions, new equity issuances that dilute existing shareholders, material acquisitions or disposals, borrowings above a defined threshold relevant to company size, related party transactions, changes to the constitutional documents, and changes to the core business scope.
Pro-rata rights and super pro-rata rights Pro-rata rights give the investor the right to participate in future funding rounds to maintain their ownership percentage. This is generally acceptable and provides investors with the ability to avoid dilution in future rounds. Super pro-rata rights give the investor the right to take a larger share of a future round than their current ownership percentage, potentially crowding out new investors who are essential for the business at that stage. We flag super pro-rata provisions and advise on whether to accept them and at what threshold.
Pay-to-play provisions Pay-to-play clauses require existing investors to participate in future rounds to maintain their anti-dilution protections and governance rights, investors who decline to follow on are penalised by having their preferred shares converted to common or by losing their anti-dilution protection. These provisions are becoming more common in Indian term sheets in 2026 as investors seek to ensure existing shareholders contribute to future rounds rather than free-riding on new investor capital. For founders, pay-to-play provisions are generally positive, they incentivise investors to support future rounds. We advise on the specific structure of pay-to-play provisions and whether the penalties for non-participation are proportionate.
Founder obligation terms
Founder vesting and lock-in
We review the proposed vesting schedule, duration, cliff period, and acceleration provisions, and the good-leaver versus bad-leaver definitions that determine what proportion of unvested shares a departing founder retains and at what price the company can buy back unvested shares. The critical negotiation points are ensuring that good-leaver provisions are broad enough to cover genuine life circumstances, that the buyback price for unvested shares on a bad-leaver event is not set at face value when Fair Market Value would be more appropriate, and that acceleration on acquisition, single-trigger or double-trigger, is appropriately structured. Learn more about vesting provisions on our SHA drafting page.
Non-compete and non-solicit provisions
Founders are typically required to commit to non-compete restrictions during their tenure as shareholders and for a period after exit. Under Section 27 of the Indian Contract Act, 1872, restraints of trade are generally not enforceable in India to the extent they restrict a person from earning a livelihood. Indian courts have consistently held that post-employment non-competes are difficult to enforce. Restrictions operative during the period of shareholding or employment are more readily enforceable than post-exit restrictions. We review non-compete provisions and ensure they are drafted within the framework that Indian courts have held to be enforceable, restrictions that are reasonable in scope, geography, and duration relative to the investor's legitimate protection interest.
Time commitment obligations Some term sheets include provisions requiring founders to devote their full professional time and attention to the company. While this is standard and expected, founders who have other commitments, advisory roles, academic positions, or ongoing consulting engagements, need to ensure these are disclosed and carved out explicitly in the term sheet before signing rather than discovering post-signing that they are technically in breach.
Exit and transfer terms
Drag-along provisions
We review the threshold at which drag-along is triggered, the percentage of shareholders that must consent to drag the remaining shareholders into a sale, and whether independent founder consent is required in addition to the percentage threshold. A drag-along provision triggered at 51% of all shareholders gives the investor significant ability to force an exit the founder might not accept. A threshold of 75% with a specific founder consent requirement gives founders much more protection. We negotiate drag-along thresholds upward wherever possible and push for founder consent to be a separate independent condition rather than subsumed within the percentage threshold.
Tag-along provisions
We confirm that founders have tag-along rights in any investor-initiated secondary sale, the right to sell their shares alongside the investor on the same terms, and that the trigger and mechanics are correctly specified.
Exit rights and put options Some term sheets include investor put options that require the company or founders to buy back the investor's shares after a specified period if an exit has not occurred, a provision sometimes called a redemption right. These provisions can create significant financial obligations for founders personally. We flag any put option or redemption right provision and advise on the appropriate scope limitation, including ensuring that any personal founder obligation is explicitly capped at a level founders can actually satisfy.
Procedural terms
Exclusivity period
We advise on the length of the exclusivity period, typically thirty to sixty days, and ensure carve-outs exist for investors who were already in active conversations before the term sheet was signed. An exclusivity period without carve-outs can mean that a founder who was speaking to three investors simultaneously is forced to suspend two of those conversations immediately on signing one term sheet, even if the other conversations were further advanced.
Due diligence scope Some term sheets specify the scope of due diligence the investor intends to conduct. Understanding this scope in advance helps founders prepare the data room appropriately rather than discovering mid-process that the investor intends to conduct a more extensive review than anticipated. Learn more about our financial due diligence preparation service and legal due diligence support.
Investor legal cost reimbursement Term sheets routinely include a provision requiring the company to reimburse the investor's legal costs up to a specified cap. This is market standard and should be budgeted for. At angel and early seed stage, this is typically ₹1 to ₹3 lakhs. At Series A with institutional investors and their external legal counsel, this can be ₹5 to ₹15 lakhs. We advise on what is reasonable for the stage and round size.
What is standard in
Indian term sheets in 2026, and what is aggressive
This section matters because the negotiation position you take depends on knowing what the market looks like right now, not what it looked like in 2021 or 2022. The Indian early-stage term sheet market has changed meaningfully since the funding correction.
What is standard and reasonable at seed stage in India in 2026: 1x non-participating liquidation preference. Broad-based weighted average anti-dilution. Four-year founder vesting with a one-year cliff. One investor board seat at seed, with an independent director mutually agreed. Reserved matters covering genuinely material corporate actions above ₹25 to ₹50 lakhs. Information rights including monthly management accounts and quarterly board reporting. Pro-rata rights for the investor to maintain their percentage in future rounds. ROFR on any secondary share transfers. Thirty to forty-five day exclusivity period. Investor legal cost reimbursement up to ₹2 to ₹3 lakhs.
What has appeared in a minority of term sheets and is worth pushing back on: 2x participating liquidation preference, reappearing in some Series A term sheets in 2026, particularly from hedge-fund-flavoured crossover investors. Full ratchet anti-dilution, never standard, always worth rejecting. Super pro-rata rights, acceptable in limited circumstances, worth negotiating the threshold. ESOP pool created entirely pre-money, worth negotiating to reduce the pre-money pool to options planned to be granted in the next twelve to eighteen months. Reserved matters lists covering decisions below ₹5 to ₹10 lakhs, too granular for early-stage companies. Reverse-flip representations, becoming more common in 2026 as investors require representations on FEMA compliance history and capital gains tax exposure on prior entity restructurings.
When Advisorate prepares a term sheet on your behalf
The service runs in both directions, we review term sheets that investors issue to founders, and we prepare term sheets on behalf of founders making an offer to investors.
Preparing a term sheet from the founder's side is relevant in two situations. First, when a founder is approaching an individual angel investor or a small investor group who does not have their own legal team and expects the company to drive the documentation process. Second, when a founder wants to establish the commercial framework before the investor's counsel takes over the drafting, which gives the founder's preferred terms as the baseline rather than the investor's.
A founder-side term sheet we prepare covers all the same elements as an investor-issued term sheet but structured to reflect founder preferences, a higher ESOP pool creation threshold pre-money, 1x non-participating preference stated as the proposed structure, broad-based weighted average anti-dilution, founder consent as an independent requirement for drag-along, a two-year vesting cliff rather than one year, and reserved matters calibrated to genuinely material decisions rather than routine operational ones. The investor then responds with their proposed changes, and the negotiation proceeds from a founder-protective baseline rather than an investor-protective one.