A term sheet is short and mostly non-binding, but do not let that fool you. It sets the economics and control that your binding Shareholders' Agreement (SHA) and Share Subscription Agreement (SSA) will lock in, and these terms almost never improve later. In an Indian seed round your investor will usually subscribe to Compulsorily Convertible Preference Shares (CCPS), because FEMA's Non-Debt Instruments Rules treat CCPS as equity, which keeps foreign investment on the automatic route. CCPS carry the preferential rights below, so read each one closely. Four clauses decide how much you keep and how much you control.
1. Liquidation preference
This sets who gets paid first when the company is sold or wound up.
Founder-friendly norm: 1x non-participating. The investor receives the greater of (a) their money back once, or (b) their as-converted share of the proceeds. They pick one, not both. This is the accepted standard at Indian seed and Series A.
Negotiate hard against: participating preferred, where the investor takes 1x back and then also shares in the rest (a "double dip"), and any multiple above 1x. These quietly shrink your payout in a modest or moderate exit.
2. Anti-dilution
This protects the investor if you later raise a down round at a lower price per share. It adjusts the CCPS conversion ratio so their CCPS convert into more equity shares.
Founder-friendly norm: broad-based weighted average. The formula counts all outstanding shares plus options and the ESOP pool, so the adjustment is partial and the pain is shared. This is widely accepted by leading Indian institutional VCs.
Red flag to negotiate out: full ratchet. It reprices the investor's entire stake to the new low price regardless of how small the new round was. It is rarely justified at seed.
3. Board composition
At seed you typically move from a founder-only board to adding your lead investor.
Founder-friendly: founders retain a majority, for example two founder seats and one investor seat, with any independent director appointed by mutual consent and a quorum that requires a founder director to be present.
Negotiate: a board that looks balanced but is not, such as one founder, one investor, and an investor-picked "independent" director, which silently hands control to the investor. Never accept an investor-majority board at the seed stage, and make sure the term sheet spells out full composition and quorum, not just "one investor seat".
4. Protective provisions (reserved matters)
This is a list of decisions that need the investor's prior consent, usually 15 to 25 items.
Reasonable to accept: issuing senior securities, changing the share capital structure, taking on large debt, selling the company, and amending the charter documents.
Negotiate: keep the list to major corporate actions with clear rupee thresholds. Push back on vetoes over ordinary operations such as routine hiring, salary revisions, small office leases, and day-to-day budgets, because those paralyse execution. Also read the "leaver" clauses in the same breath: a bad-leaver trigger should require proven, non-appealable wrongdoing, not an unproven complaint.
One India-specific relief
Angel tax under Section 56(2)(viib) of the Income Tax Act was abolished for all investor classes, domestic and foreign, with effect from 1 April 2025. Issuing CCPS at a premium above fair market value no longer triggers that tax on new raises, which removes a valuation headache that used to complicate Indian term sheets.
The takeaway
The term sheet, not the SHA, is your real moment of leverage, and your fully diluted post-money ownership matters more than the headline valuation. Aim for 1x non-participating, broad-based weighted average, a founder-majority board, and a tight reserved-matters list. Before you sign anything, have an experienced Indian startup lawyer review it.