Introduction
In 2023, a study by Tracxn reported that more than 64% of early-stage Indian startups entered into funding discussions without fully understanding the term sheet they were about to sign. It’s a staggering number, but not surprising. The reality is, in the rush of capital, term sheets often become a checkbox instead of a careful negotiation. And that’s where most founders start making the kind of mistakes that cost equity, control, and sometimes even the company itself.
It’s not just a two-page summary of who gets what. A term sheet for startup investment is the blueprint that decides everything from how much of your company you’re giving up to who controls the boardroom table when things go south. And though it may look informal, the impact of this document is anything but casual.
What most founders don’t realize is that even though term sheets aren’t legally binding in full, they do contain clauses that are enforceable, like confidentiality, exclusivity, and no-shop obligations. These are real commitments that can create legal consequences if violated. And yes, some companies were sued in India over breaches, even before any formal investment agreement was signed.
Here’s why understanding your term sheet matters:
- It directly affects your valuation and equity structure.
- It outlines the key clauses in a term sheet, like liquidation preference, vesting, and anti-dilution rights.
- It decides whether your next round of funding will dilute you to irrelevance.
- It locks in power dynamics between investors and founders.
- It has legal weight, especially in Indian courts, where legally binding term sheet cases are now more common.
And yet, far too many founders skim it, or worse, they sign based on trust, and they fail to understand that this doesn’t work.
At Corrida Legal, we’ve seen startups raise funds, celebrate it online, and then spend the next year trying to fix a term sheet they never negotiated properly. That’s why this article breaks down the startup funding documents in India that founders must understand, starting with the most underestimated one, the term sheet. Read our article: What is Full and Final Settlement? Know the Process, Rules & Employee Rights in India.
What is a Term Sheet in Startup Funding?
In the startup world, a term sheet for startup investment is the document that shows up right after a handshake and just before the lawyers walk in. It’s not the final contract, but rather, a summary of the key terms both the investor and the startup agree on, which includes valuation, equity percentage, board rights, liquidation preference, and more. Think of it as a roadmap in which you might not be legally forced to take the journey, but once you sign it, it’s hard to take another route without consequences.
So, what is a term sheet in startup funding, exactly? At its core, it is a non-binding agreement that outlines the intentions of both parties regarding an upcoming investment deal. It forms the first formal step in the investment process and sets the tone for how the final contract, like the Shareholders Agreement (SHA) and Share Subscription Agreement (SSA), will look.
Here’s where confusion often happens. Many early founders think that if it’s not legally binding, then it’s not a big deal. That’s a mistake. Because even if most of a term sheet isn’t enforceable, some parts of it are. For example:
- Confidentiality clauses.
- Exclusivity or “no-shop” obligations.
- Sometimes, clauses that create liability for acting in bad faith.
- In some cases, founders weren’t aware that certain pre-negotiated points became binding later.
In contrast:
- A Memorandum of Understanding (MoU) is typically more formal but still not binding in most legal contexts.
- A Shareholders Agreement (SHA) is a legally enforceable contract that governs the rights, duties, and obligations of shareholders.
- A term sheet is more of a blueprint that comes before the SHA, though it still has legal implications, especially in the context of Indian startup funding.
To be clear, a term sheet doesn’t lock in the investment; it locks in the expectations.
Here’s how a term sheet differs from an MoU or SHA:
| Document Type | Binding Nature | Purpose | Used In |
| Term Sheet | Partially Binding | Governs the relationship post-investment | Early-stage VC |
| MoU | Mostly Non-Binding | General intent without specifics | Preliminary Talks |
| SHA | Legally Binding | Governs relationship post-investment | Final Legal Contract |
Why This Matters for Founders
- The startup funding documents for the Indian investor’s use often begin with term sheets
- Signing without review can create long-term legal issues.
- Every key clause in a term sheet influences final agreements.
- Indian courts have recognized the elements of a legally binding term sheet in multiple startup disputes.
And most importantly, founders shouldn’t think of the term sheet as paperwork; it’s the beginning of a power shift. Every line in it decides who has a say in the company’s future, and how much of it a founder gets to keep. So even if it doesn’t look like a contract, it behaves like one. Sometimes, even worse, because it’s signed without reading.
Importance of a Term Sheet for Founders
The term sheet for startup investment is usually the first “official” document in any funding conversation, but it’s also the most overlooked. A lot of early-stage founders rush to sign it because getting a VC interested feels like winning the lottery. But here’s the catch: that same sheet of paper can decide whether you stay in control of your company or slowly lose grip on it over the next 2–3 rounds. So, what is a term sheet in startup funding, and why does it matter so much?
Well, it’s not technically a contract, at least not in full. Most of it isn’t legally binding, but the parts that are, like the no-shop, confidentiality, and good faith clauses, can be enforced. Indian courts have started seeing more cases around legally binding term sheet disputes in recent years.
Now here’s where it gets risky for founders:
- You think you’re just agreeing on valuation.
- But you’re also agreeing to control rights, exit conditions, and investor power.
- It sounds non-binding, but future legal agreements will mirror this document.
- Your startup funding documents in India start here. Get this wrong, and it spreads everywhere.
Common Things Founders Miss
- Not realising that anti-dilution rights can kill future negotiations.
- Letting the investor appoint the majority of the board.
- Overlooking vesting terms on founder shares.
- Believing friendly investors won’t enforce drag-along rights.
- Assuming Indian investors follow Western norms, many don’t.
A lot of founders were under the impression that these things would get “sorted out” in the SHA later, but most of the SHA is already pre-decided in the term sheet, especially when the investor controls the paperwork.
Quick Snapshot: What’s At Stake
| Area | What Term Sheet Affects | What Can Go Wrong |
| Equity | Founders earn less even in a big acquisition | You lose more % than needed |
| Control | Board seats, voting rights | Founders get sidelined from decisions |
| Exit Terms | Investors return conditions | How long do founders need to stay |
| Founder Vesting | How long founders need to stay | Lose unvested shares if leaving early |
Legal Mistakes That Happened
In 2022, a Delhi-based startup had to give back funds and dissolve the company after breaching a no-shop clause they didn’t even remember agreeing to. Another case in Bangalore involved a founder being sued for “acting in bad faith” because he signed two term sheets with similar clauses. These aren’t rare now as they’re happening more and more. A lot of this could’ve been avoided if someone just took 30 minutes to break down and understand what was provided in the term sheet.
So, Why Should Founders Take It Seriously?
Because:
- It becomes the blueprint for all future funding paperwork.
- The tone of negotiation is set here.
- Many key clauses in a term sheet aren’t revisited again they are just repeated into the SHA.
- A term sheet for a startup investment is where you still have leverage.
Once it’s signed, your options shrink, and if you haven’t reviewed the document with someone who understands startup funding documents in India, chances are high that you have missed something big.
Key Clauses in a Startup Term Sheet
When it comes to startup funding documents in India, the real power doesn’t come from the cheque; it comes from the term sheet, and more specifically, the clauses buried inside it. Founders may look at these as standard boilerplate clauses, but every line in a term sheet for startup investment holds the potential to change your company’s future, whether that’s a quick exit or a funding nightmare.
Below are the most critical and often misunderstood clauses in a typical term sheet in startup funding. Some of them look harmless at first glance, but once signed, they can turn the balance of power permanently toward the investor side.
1. Valuation & Equity Offered
This clause decides how much of your company you’re selling and at what price. But here’s where most founders get it wrong: they confuse pre-money valuation with post-money valuation, and that changes the equity math completely.
For example:
Pre-money of ₹10 Cr with a ₹2 Cr investment = 16.67% dilution.
Post-money of ₹12 Cr with same ₹2 Cr = 20% dilution.
Many Indian founders don’t even notice the valuation type before signing, and the effect of that mistake is permanent.
2. Liquidation Preference
This is where investors ensure they get their money back before anyone else, often 1x, 1.5x, or even 2x of their original investment, plus accrued interest. Now, the legal mistake most founders make here is assuming this only applies during bankruptcy, and that’s not true. It triggers during any exit, including acquisition. And if there’s a “participating preference” clause, the investors get both their investment back and a share of the remaining profits. It’s double-dipping.
3. Anti-Dilution Rights
This clause protects investors if your startup raises a future round at a lower valuation (a down round). What founders think is, “Oh, I’ll never raise a down round”. But the truth is it’s common, especially in India, where startup valuations fluctuate heavily.
A full ratchet anti-dilution can completely wipe out founder equity in the event of a down round. Weighted average anti-dilution is fairer, but still dilutive.
4. Voting Rights
Investors will often ask for affirmative rights, meaning they must approve decisions like:
- Appointing key employees
- Changing business model
- Raising more capital
- Issuing ESOPs
Now here’s the issue. Some founders believe that only the majority shareholders get voting rights, which is not true. Even a 10% investor can hold blocking power through this clause; that’s how control slips out from the backdoor.
5. Vesting Schedules
These clauses are written to ensure founders stick around. Typically, it’s 4 years with a 1-year cliff. But here’s what people miss: Reverse vesting applies to your already issued shares. If you quit early, even your current shares may go back to the company or the investor. A mistake here could void your equity, even if you built the entire product.
6. Drag-Along and Tag-Along Rights
- Drag-along rights allow majority shareholders (usually investors) to force minority shareholders (founders) to sell in an exit.
- Tag-along rights protect minority holders by letting them “tag” onto a deal if the majority sells.
In India, many startups have been forced to sell at terms they didn’t like, because of these drag clauses. Founders didn’t realise that even 51% control could drag their entire equity with it.
7. Exit Clauses
Some term sheets contain fixed timeframes for exit, e.g., “Investor will seek exit within 5 years”, which sounds okay, but if your business isn’t ready, the investor can:
- Push for a premature acquisition
- Enforce IPO prep
- Trigger buyback at inflated valuation
And if your term sheet mentions exit “at investor’s discretion”, you’re basically on their schedule, not yours.
Table: Impact of Key Clauses
| Clause Name | Why It Matters | Risk If Ignored |
| Valuation & Equity | Determines stake dilution | Founders lose shares if they leave early |
| Liquidation Preference | Misunderstanding pre/post-money math | Founders might receive little/no return |
| Anti-Dilution Rights | Protects investors in down rounds | Heavy founder dilution |
| Voting Rights | Investor approval for key business decisions | Loss of autonomy |
| Vesting Schedule | Controls forced exits or protection in sales | Ensures the founder stays long-term |
| Drag/Tag-Along Rights | Controls forced exits or protection in sale | Unwanted or unfair exits |
| Exit Clause | Defines investor exit expectations | Legal pressure to exit on unfavorable terms |
Legal Implications: What’s Binding and What’s Not?
The term sheet for startup investment often comes with a myth that none of it is binding. But in Indian legal practice, this is only half-true. While many business-related terms in the term sheet in startup funding are non-binding by intention, there are key clauses that can and have been enforced by Indian courts. Founders who don’t understand this difference end up in trouble. It’s happened before.
Let’s break it down clearly, because if you’re going to sign something, you should at least know what could hold up in court.
What’s Non-Binding?
In general, the commercial and funding-related parts of a term sheet are considered non-binding. That includes:
- Valuation
- Dilution percentages
- Investor rights, like board seats or drag-along rights
- Exit timeline or strategy
These are meant to guide the next steps, usually the Shareholders Agreement (SHA) or Share Subscription Agreement (SSA). However, just because they’re “non-binding” doesn’t mean they’re irrelevant. Most founders don’t realise that if you try to renegotiate these later, investors may walk out or pull the term sheet entirely.
What’s Binding (and Enforced in India)
Some clauses are nearly always binding, regardless of the document being labelled “non-binding.” These include:
- Confidentiality
- Exclusivity / No-shop
- Governing law and dispute resolution
- Costs and expenses
If you break these terms after signing, it can lead to legal action, injunctions, and even damages. Courts in Mumbai, Delhi, and Bengaluru have issued interim orders to stop startups from talking to other investors, just because a no-shop clause was violated.
One early-stage founder in 2021 was issued a legal notice after signing two competing term sheets with overlapping exclusivity windows. He thought, “It’s non-binding anyway”, but the court didn’t agree.
Table: Binding vs Non-Binding Clauses in Indian Term Sheets
| Clause Type | Binding | Risk If Ignored |
| Valuation Terms | No | Must reimburse investor expenses even if the deal fails |
| Confidentiality | Yes | Legal action, reputational damage |
| No-Shop/Exclusivity | Yes | Court orders to stop parallel negotiations |
| Liquidation Preferences | No | Enforced only in the final SHA |
| Drag/Tag Rights | No | Investor might demand terms stay the same in SHA |
| Expenses & Legal Costs | Yes | Must reimburse investor expenses even if deal fails |
| Dispute Resolution | Yes | Governs where/when you can fight future disputes |
Legal Gaps Founders Miss (That You Shouldn’t)
- Assuming that calling a document “non-binding” means nothing can be enforced.
- Signing without checking the exclusivity period, some say 30 days, others 90.
- Not negotiating who pays legal costs if the deal doesn’t close.
- Using foreign law (e.g., Delaware, Singapore) as governing law in Indian deals often makes it difficult to enforce locally.
- Not specifying that SHA will override the term sheet, leading to conflicting terms later.
These are not theoretical problems; they’re common mistakes seen in actual Indian VC deals.
Common Legal Mistakes (That Have Happened)
- A Bangalore startup was sued for breach of confidentiality after sharing the investor pitch with a rival VC.
- In Pune, a founder ignored a no-shop clause, received an injunction, and couldn’t raise funds for 3 months.
- One team thought that expenses were “optional” until they received a ₹1.5 lakh invoice for legal and diligence costs when the deal failed.
Mistakes like these are avoidable, but only if you take term sheets seriously. Just because a clause is small doesn’t mean it’s harmless.
Why Founders Must Treat Term Sheets With Legal Caution
Here’s why:
- Some clauses can be enforced before funding even closes.
- Courts in India have become stricter about contractual intent.
- Most term sheets for startup investment templates now contain a “mixed enforceability” section.
- Startup funding documents in India are no longer a grey area; case laws are catching up fast.
Common Mistakes Founders Make with Term Sheets
When it comes to a term sheet for startup investment, most founders focus too much on the valuation and not enough on the fine print. The excitement of landing an investor can blur judgment, leading to serious oversights, and these aren’t rare cases; these are daily errors made by early-stage Indian founders navigating funding for the first or second time.
The issue is that founders believe the term sheet in startup funding is “just a formality” before real paperwork; that belief alone has sunk some perfectly promising startups before their Series A. The truth is, by the time you reach the Shareholders Agreement (SHA), 90% of the terms are already locked because they’re mirroring this initial document.
Most Frequent Mistakes Founders Make:
- Ignoring the fine print in liquidation preference
Many founders think liquidation preference only applies in the case of bankruptcy. Whereas, in Indian deals, even a profitable acquisition triggers it, leaving founders with much less than they expected. - Not negotiating valuation terms properly
There’s often confusion between pre-money and post-money valuation; one wrong assumption, and your dilution jumps from 15% to 25%. A term sheet may say “₹10 crore pre-money,” but the investor calculates based on post-money, and most founders miss this entirely. - Overlooking dilution risk and anti-dilution clauses
Clauses like full ratchet anti-dilution can wipe out founder equity during a down round. Founders rarely ask for a cap or conversion threshold, assuming those are for bigger companies, which is not true. - Not consulting a startup lawyer before signing
Too many founders sign term sheets without getting a legal review, often due to speed or trust. But every term sheet contains 1–2 lines that could lead to future disputes, such as the governing law or expenses reimbursement. Some startups even paid investors’ legal bills after the deal collapsed, because of one clause they didn’t read. - Assuming it’s not enforceable because it’s “non-binding”
The term sheet may be labelled non-binding, but as covered earlier, clauses like confidentiality, exclusivity, and governing law are enforceable. Founders face real legal notices over these, especially in India, where courts now take intent into account.
Table: Mistakes vs Real Consequences
| Mistake | What Happens Later |
| Ignoring liquidation preference | Founders receive little during acquisition |
| Misunderstanding valuation math | Higher dilution than expected |
| Skipping anti-dilution clause negotiation | Equity erosion during down rounds |
| Not hiring legal counsel | Signing conflicting or risky terms |
| Believing “non-binding” means no legal impact | Legal action under confidentiality or exclusivity breaches |
Additional Oversights That Hurt Founders
- Forgetting to define exit timelines clearly, leading to investor pressure after 3 years.
- Letting the investor get board majority through secondary clauses.
- Not clarifying founder vesting terms, which sometimes reset old equity.
- Using the investor-provided term sheet template without any redlines.
Some founders have been forced to buy back shares, or worse, restructure entire cap tables, because of mistakes made at this stage. And unlike the SHA, where lawyers are always involved, the term sheet is where things often go unchecked.
Best Practices Before Signing a Term Sheet
Too many startup founders in India jump into signing a term sheet for startup investment with the same energy they used to close their first client. But term sheets aren’t sales decks; they are legal signals of commitment, and sometimes traps. Once signed, even the most “non-binding” clauses can corner a founder into situations they never thought they’d face. That’s why it’s not just about what’s written in the term sheet in startup funding, it’s about how founders read, negotiate, and protect themselves before signing anything.
Over time, some startup funding documents in India have evolved into investor-friendly templates that quietly embed terms against the founder’s interest. Most of the problems aren’t in big bold clauses, they’re in the quiet assumptions no one questioned.
Here are the best practices every founder must follow before signing a term sheet:
- Get a qualified startup lawyer to review the document
Don’t rely on your uncle, who did property law, or a CA who handled LLPs. Startup terms are layered; if you miss a drag clause or misread liquidation preference, the cost isn’t legal, it’s equity. And most importantly, your early-stage mistakes don’t get corrected in the SHA; they get ignored entirely. - Negotiate based on business logic, not ego
Founders sometimes fight hard on valuation but forget to push back on investor control or veto rights. But remember, giving up 5% more equity is less dangerous than giving away decision-making power over hiring, ESOPs, or future rounds. - Understand the long-term impact of each clause
A simple anti-dilution clause may sound harmless now, but during a down round, it might dilute you far beyond recovery and the exclusivity clause could block other investors for 90 days if the deal fails. Founders who don’t plan three steps usually regret two steps back. - Compare multiple term sheets when possible
This isn’t always an option, but when it is, do it. Many founders jump at the first offer without seeing others. Some investors offer better term sheet in startup funding, not just in valuation, but also in founder-friendly terms like board structure, vesting flexibility, or less aggressive liquidation rights. - Write down verbal promises separately
One of the biggest legal mistakes is assuming investor intentions will automatically appear in final documents. Many founders believe, “We discussed it on the call, they’ll include it”, but they don’t. If your investor promised anything, say it’s an 18-month runway, or a second tranche, write it into the term sheet or in a separate email/MoU.
Table: Pre-Signing Checklist for Founders
| Checklist Item | Why It Matters |
| Understanding dilution, preference, and anti-dilution | Avoids irreversible equity/control traps |
| Fixes confusion between pre- and post-money | Prevents future cap table surprises |
| Valuation type clarity | Fixes confusion between pre and post-money |
| Exit clause clarity | Avoids forced exits or investor push after 2-3 years |
| Clear written summary of verbal commitments | Ensures nothing is lost between conversation and contract |
Common Errors Founders Still Make (with Real-World Impact)
- Signing in a rush to “lock the deal” – One founder in Noida signed within 48 hours without review. The no-shop clause blocked all other VCs, and the deal fell through after 30 days.
- Ignoring governing law – A Bengaluru SaaS startup signed a term sheet with Singapore as the jurisdiction, and when disputes arose, they couldn’t afford to fight it.
- Assuming friendly investors won’t enforce harsh clauses – A Delhi healthtech founder was shocked when his investor demanded a share buyback after a failed round. The clause was in the term sheet, but he had assumed “they won’t use it.”
Also, some founders even forget to date the term sheet or cross-sign all pages, which leads to complications during due diligence.
Sample Term Sheet (Format or Snapshot)
A term sheet for startup investment may look like a casual 2–3-page document, but don’t let the minimal length fool you. It’s packed with legal landmines, and each clause signals a much deeper contract that’ll follow. While the final Shareholders Agreement (SHA) will run into dozens of pages, most of its core terms, like valuation, board control, and founder obligations, are all pre-decided in this lean document.
Below is a realistic sample format of a term sheet in startup funding used in early-stage funding rounds in India. It shows the basic structure that founders and investors typically negotiate.
Note: This sample does not substitute legal review. There are different formats for different sectors, and sometimes clauses are omitted or hidden in footnotes.
Sample Term Sheet Format for Indian Startups
| Clause | Sample Wording / Explanation |
| Company | Investor is entitled to 1 board seat |
| Investor | [VC Fund LLP], a SEBI-registered Category I AIF |
| Investment Amount | ₹3,00,00,000 (Three crore INR only) |
| Valuation | Pre-money valuation: ₹12 crore |
| Type of Security | Compulsorily Convertible Preference Shares (CCPS) |
| % Equity to be issued | 20% post-money basis |
| Liquidation Preference | 1x non-participating preference |
| Anti-Dilution Protection | Weighted average method |
| Board Rights | 4 years vesting with a 1-year cliff for unvested shares |
| Founder Vesting | Working capital, hiring, and marketing |
| Use of Funds | The company agrees not to negotiate with other investors for 60 days |
| Exclusivity | The company to bear legal and diligence expenses up to ₹1.5 lakhs |
| Confidentiality | Both parties agree to keep the contents of this term sheet confidential |
| Governing Law | Laws of India, courts in Mumbai |
| Expenses | Company to bear legal and diligence expenses up to ₹1.5 lakhs |
Key Sections You’ll Always Find (or Should)
Even if formats vary, most startup funding documents in India will carry these heads:
- Valuation Terms – Defines pre-money and post-money value clearly.
- Security Instrument – Whether it’s equity, CCPS, CCDs, or SAFE (rare in India).
- Board & Voting Rights – Investor participation in major decisions.
- Founder Commitments – Including vesting, lock-in, or clawback clauses.
- Exit Clauses – IPO timeline, drag-along or tag-along rights.
- Legal Clauses – Dispute resolution, jurisdiction, and expense-bearing.
- Exclusivity & Confidentiality – Often enforceable even if the rest isn’t.
Why Most Founders Don’t Read the Format Carefully
Let’s be honest, some founders don’t even read half of this. They skim valuation and dilution, and assume the rest is boilerplate. Whereas these formats are not universal. Some investors use U.S. style templates that don’t align with Indian law, while others change terms after verbal negotiations. One founder even found a clause saying the investor could remove the CEO with just a board majority, which he never agreed to in the discussion. Also, grammatical errors and typos are often ignored in term sheets, but those little things could later create contractual ambiguity. (Yes, even one missing comma in “pre-money post-money” has sparked disputes.)
3 Legal Mistakes Commonly Found in Term Sheets:
- Mentioning “equity” shares when the actual instrument is CCPS, which confuses the cap table math.
- No specification of the founder vesting start date, creating room for investor-imposed reset.
- Expense clause not capped, leading to surprise bills after deal breakdown (some paid over ₹2L).
FAQ’s – Term Sheet in Startup Funding
1. Are term sheets enforceable for startups in India?
Well, that depends. The vast majority of the clauses in a term sheet on startup funding are non-binding, particularly the commercial terms such as valuation or investment amount. But some clauses, such as exclusivity, confidentiality, and governing law, are sometimes legally enforceable. While some founders believe, “It’s just a handshake agreement,” which in fact is not. If something goes south, investors can wield those binding clauses in court, particularly if the deal falls apart while the investor is conducting due diligence.
2. What is the difference between a term sheet and a shareholders’ agreement (SHA)?
The Term Sheet is the blueprint by which you know what SHA will contain, wrinkled, taped, or notarized and signed at the bottom. The SHA is the building that the blueprint describes. The term sheet itself lays out the primary terms, like valuation, equity, rights, etc., in abbreviated form, frequently before the process of legal due diligence. Once everybody agrees, then lawyers turn that term sheet/contract to be the SHA, which will be the long version that builds it all out and is the legally binding contract. But here’s the kicker: by the time you get to the SHA, you’ve already agreed to about 90% of what’s in the term sheet. So, if there’s something you miss early, it may be too late to fix it later.
3. Can the founders negotiate on a term sheet, or is the number fixed?
Definitely, yes, startup funding founders can and should negotiate a term sheet. Valuation, board seats, founder vesting, and more can all be up for discussion. The error that many people make, as first-time founders, is that they feel like these are written in stone or they’ll “address it later”. That rarely works. If you don’t like something, say something straight away. Better to lose one deal on principle than to sign something you’ll regret for the next several years.
4. What are some mistakes Indian founders make when signing term sheets?
There are several going-heavy errors, perhaps the most common of which is signing without legal review. Certain founders believe that, because it’s short, it’s not serious. Pre-money and post-money, some founders feel that they are not experts in valuation and get confused between pre-money and post-money valuation, and give away more equity. Just as many also overlook small print protections like anti-dilution clauses and liquidation preference. Even worse, some take the word of an investor without ensuring it’s written in the term sheet, which, let’s face it, nearly always ends in regret.
Conclusion – Term Sheet in Startup Funding
The journey from pitch deck to cheque is never just about money. The term sheet in startup funding is the first legal checkpoint that will decide how much equity you’re left with, how much control stays with you, and how difficult or smooth your next round will be. But most founders still rush through it, either trusting the investor blindly or simply not having the time to get it reviewed properly.
The real problem isn’t just about being careless, it’s about being overwhelmed. When you’re raising funds, juggling legal clauses, startup funding documents in India, and investor meetings at once, it’s easy to assume that a 3-page term sheet is “not serious yet”.
But let’s be clear:
- The term sheet for startup investment is the first step where power shifts start to happen.
- It may be non-binding, but it contains binding clauses like confidentiality, exclusivity, and governing law.
- Mistakes here lock into future agreements, including your SHA and SSA.
- Even something like anti-dilution terms or board rights can shape your startup’s future.
- Misunderstanding the term sheet format leads to legal confusion later on.
Also, it’s not only about legal complexity. Some founders don’t ask questions at this stage, thinking it’ll make them look difficult, but saying nothing now and regretting later isn’t negotiation; it’s just giving away leverage.
Founders should not treat the term sheet as a “deal closer” but as the deal definer. It’s what makes the difference between a founder-led company and a VC-led company. Investors aren’t the enemy, but they are professionals, and you should be one too.
If any part of your term sheet feels rushed, unclear, or too “template-based,” pause. Even if your startup is bootstrapped and this is your first-ever term sheet, get it read and reviewed.
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