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Every Clause in an Indian Seed Term Sheet: What Is Standard, What Is Aggressive, and Exactly What to Push Back On
The clauses that cost founders the most are rarely the ones they negotiate hardest. A clause-by-clause guide to Indian seed and pre-Series A term sheets, with market-standard positions for 2026 and the language to push back with.
Published 27 September 20267 min read
The short answer
A market-standard Indian seed or pre-Series A term sheet in 2026 has a 1x non-participating liquidation preference, broad-based weighted average anti-dilution, one investor board seat, a reserved matters list limited to fundamental decisions, and exit rights framed as best efforts rather than founder obligations. Push back hardest on participating preferences, full-ratchet anti-dilution, operational veto rights, personal founder indemnities without a cap, and any put option or buyback obligation on founders.
Who this is for: Founders holding, or expecting, a term sheet for a seed, angel or pre-Series A round in India.
Summary: what most founders miss
- A term sheet is mostly non-binding, but the clauses in it almost always survive into the final agreements. Negotiate now; it is much harder later.
- Economics (valuation, preference, anti-dilution, ESOP pool) and control (board, vetoes, drag, exit) matter equally. Founders usually over-negotiate the first and under-negotiate the second.
- Under FEMA, foreign investors cannot be promised an assured return on exit. A founder put option at a guaranteed price is both aggressive and, for foreign investors, not permitted.
- Reserved matters lists grow quietly. Anything operational on that list is a veto over running your company.
- The best negotiating position is a second term sheet. The second best is knowing what "standard" is.
Most founders read their first term sheet looking for the valuation. The number they should be looking for is buried in clause 9, 14 or 17: a participating preference, a full ratchet, a buyback obligation, or a reserved matters list that gives a 12% investor a veto over hiring. These clauses rarely matter while things go well. They decide everything when things do not.
What is binding in an Indian term sheet?
Usually only a few clauses: confidentiality, exclusivity (the no-shop period), costs, governing law and sometimes a break fee. Everything else is a statement of intent that gets turned into the share subscription agreement (SSA) and shareholders' agreement (SHA). In practice, lawyers draft the SSA and SHA from the term sheet, and reopening a clause later costs goodwill and time. Treat the term sheet as the deal.
The clause-by-clause guide
| Clause | Market standard, India seed / pre-Series A (2026) | Aggressive version | What to push back to |
|---|---|---|---|
| Valuation and round size | Pre-money stated, round size stated | Valuation stated "post-money including pool" | Pre-money stated, pool top-up sized to a hiring plan |
| ESOP pool | 8% to 12% post-money, sized to 18 to 24 months of hiring | 15%+ created entirely from pre-money | Pool sized to a plan; existing unallocated options counted |
| Instrument | CCPS, 1:1 conversion | Warrants or partly paid shares with complex triggers | Plain CCPS |
| Liquidation preference | 1x, non-participating | Participating, 1.5x to 2x, or senior to all others | 1x non-participating, pari passu with other preferred |
| Anti-dilution | Broad-based weighted average | Full ratchet, or narrow-based weighted average | Broad-based weighted average with carve-outs for ESOP and approved issues |
| Dividend | Nominal (0.001% to 0.01%), non-cumulative | Cumulative dividend at a real rate | Nominal, non-cumulative |
| Pre-emptive right | Pro rata to shareholding | Super pro rata, or right to take the whole next round | Pro rata only |
Swipe the table sideways to see all columns.
| Clause | Market standard | Aggressive version | What to push back to |
|---|---|---|---|
| Board | Founders keep majority; 1 investor director; sometimes 1 independent later | Investor board control or casting vote | Founder majority until Series A at least |
| Reserved matters | Fundamental: change in rights, new share issues, M&A, winding up, related party transactions, large debt | Operational: budgets, hiring above ₹X, contracts above small thresholds, marketing plans | Fundamental list only, with high monetary thresholds |
| Quorum | Investor director needed for quorum, with adjournment rule | No meeting valid without investor director, no fallback | Reconvened meeting valid without investor if first one lacks quorum |
| Information rights | Monthly MIS within 30 days, quarterly and annual accounts | Weekly reports, access to all systems | Monthly, quarterly and annual, with a set format |
| Founder lock-in | 3 to 4 years, reverse vesting or leaver buyback | Full forfeiture at face value for broad "cause" | Good leaver at fair value; bad leaver narrowly defined (fraud, material breach) |
| Non-compete | While a founder is employed or a shareholder | Long post-exit non-compete, worldwide, all categories | Limited to direct competitors during tenure |
Swipe the table sideways to see all columns.
| Clause | Market standard | Aggressive version | What to push back to |
|---|---|---|---|
| ROFR on founder transfers | Investors can match any founder sale | ROFR plus veto on any founder sale | ROFR only, with a small free-transfer allowance |
| Tag-along | Investors can sell alongside founders on same terms | Tag with preference applied on top | Plain tag on the same terms |
| Drag-along | Only after 5 to 7 years, needs majority of preferred and founders, minimum price | Investor alone can drag, any time, any price | Time-bound, dual consent, floor price |
| Exit rights | Company and founders make best efforts for IPO or strategic sale in 5 to 7 years | Founder put option or buyback at guaranteed IRR | Best efforts only; no personal obligation or assured return |
| Warranties and indemnity | Company warranties; founders warrant limited matters, capped | Uncapped, joint and several founder indemnity | Company indemnity; founder liability capped, limited to fraud or wilful breach |
| Exclusivity (no-shop) | 30 to 45 days | 60 to 90 days, with break fee | 30 to 45 days, ends if investor misses timeline |
| Costs | Company pays investor legal and diligence costs up to a cap | Uncapped | Cap stated in rupees |
Swipe the table sideways to see all columns.
Anti-dilution, worked in numbers
Anti-dilution protects investors if you later raise at a lower price. How it is calculated decides whether a down round is painful or catastrophic for founders.
Reserved matters: where control actually sits
The reserved matters list, sometimes called affirmative vote matters, is the most under-read part of an Indian term sheet. It lists decisions the company cannot take without the investor's consent. At seed, a reasonable list covers changes to share capital and investor rights, mergers and sale of the company, winding up, changes to the business, related-party transactions and borrowing above a threshold.
The problem is drift. Over drafts, items get added: "approval of annual budget", "hiring or firing of any employee with CTC above ₹15 lakh", "any contract above ₹25 lakh", "change in marketing agency". Each one sounds sensible. Together, they mean a 12% shareholder runs the company with you.
Case study
The term sheet that looked like a win
D2C nutrition brand, ₹9 Cr annual revenue, first institutional round
Situation
A family office offered ₹6 Cr at ₹42 Cr pre-money, well above a micro VC's ₹34 Cr offer. The founders were ready to sign within a week.
What was missed
The family office term sheet included a 1x participating preference, full-ratchet anti-dilution, a founder put option at "investment plus 15% IRR" if there was no exit in five years, uncapped founder indemnities and 23 reserved matters, including annual budget and all hires above ₹12 lakh CTC.
What changed
The founders modelled outcomes. At a ₹120 Cr sale in year 5, the participating preference alone moved more than ₹5 Cr from founders to the investor compared to a non-participating structure. In a flat or down scenario, the put option could make the founders personally liable for about ₹12 Cr. They took the model back to both investors.
Outcome
The family office dropped the put option and full ratchet but kept participation. The micro VC raised its offer to ₹37 Cr with standard terms. The founders signed with the micro VC.
The lesson
Headline valuation is one clause. The cheaper-looking term sheet was worth more because it did not transfer downside to the founders personally.
Illustrative case. Figures are representative of patterns in Indian rounds, not a specific company.
The participation math is covered in detail in 1x Participating vs Non-Participating Liquidation Preference.
How to push back without losing the deal
- Push back in one consolidated mark-up, not clause by clause over two weeks. Investors respond better to one clear list.
- Tie every ask to a principle: "standard for this stage", "matches what our seed investors have", or "consistent with FEMA rules".
- Trade: accept a slightly lower valuation for clean terms, or a larger ESOP pool for a smaller reserved matters list.
- Get your lawyer to mark up, but lead the commercial conversation yourself. Investors want to see how the founder negotiates.
- Keep the other term sheet conversation alive until the SHA is signed.
If you are holding a term sheet and want a second read from someone who has sat on the other side of the table, send it to us.
Read next: family office vs VC vs strategic investor and SEBI's angel fund rules. Preparing to raise? See how our seed and angel round support works.
Questions founders ask us
Is a 1x liquidation preference standard in India?
Yes. A 1x non-participating preference, pari passu among preferred investors, is the market standard for seed and pre-Series A rounds in India. Participating or multiple preferences show up mostly in difficult rounds or with less experienced investors.
I have a term sheet with full ratchet anti-dilution. Is this normal?
No. Broad-based weighted average is standard. Full ratchet appears in distressed rounds or with investors who have little leverage elsewhere. Ask for weighted average; if they refuse, it tells you how they will behave in a difficult year.
Should founders give personal indemnities?
Only for things within their personal control, such as fraud or undisclosed personal liabilities, and with a cap. The company should give the business warranties. Uncapped, joint and several personal indemnities are a red flag.
How long should the no-shop period be?
30 to 45 days is standard for seed and pre-Series A. Longer exclusivity is reasonable only if the investor commits to a diligence timeline, and it should end if they miss it.
Can an investor force me to sell the company?
Only if the SHA gives them a drag-along right. A reasonable drag is time-bound (after 5 to 7 years), needs consent of both a majority of preferred investors and the founders, and has a minimum price. An unrestricted investor drag is worth refusing.
Is the term sheet legally binding?
Mostly not. Confidentiality, exclusivity, costs and governing law are usually binding; the commercial terms are not until the SSA and SHA are signed. But reopening terms later is expensive, so negotiate them in the term sheet.
About the author
Written by the Alphamark Ventures team, a fundraising advisory firm helping founders raise seed, angel and pre-Series A rounds, with a focus on consumer, consumer tech and consumer AI. Figures are as of the date shown and are for general information; this is not legal, tax or investment advice.
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