Before any pre-seed founder has the relationship with a lawyer that lets them confidently negotiate, they will receive a term sheet. The document is short — most are 4–6 pages. The legalese is intimidating. Most of it is boilerplate. Three or four clauses actually matter for your company's economics; another three or four matter for your control; everything else is either market or noise. This piece tells you which is which.
The thirteen clauses, ranked by what they actually affect
Term-sheet clauses ranked by founder impact (1 = highest)
Pre-money valuation
Determines dilution and round price for follow-on
9.5 · 9.5
Liquidation preference
1× non-participating is market; anything else is a red flag
9 · 9
ESOP top-up (pre- vs post-money)
Pre-money ESOP comes from founders, not investors
8.5 · 8.5
Anti-dilution
Broad-based weighted average is market; full-ratchet is not
7.5 · 7.5
Board composition
Founders should retain majority at pre-seed
7 · 7
Protective provisions / reserved matters
Watch for the breadth of the list, not the existence of it
6.5 · 6.5
Drag-along / tag-along
Standard mechanics, threshold matters
5 · 5
Information rights
Reasonable for institutional investors
3.5 · 3.5
Pro-rata rights
Investor's right to participate in future rounds
4.5 · 4.5
ROFR / co-sale
4 · 4
Founder vesting
4-year, 1-year cliff is market — push back on harsher
6 · 6
Exclusivity / no-shop
4 · 4
Confidentiality + governing law
1.5 · 1.5
Impact (1 = highest)
Composite scoring across 30+ recent Indian early-stage term sheets. Impact is a blend of economic, control, and signaling effects in the average outcome.
The five things to negotiate hard
1. Pre-money valuation
Valuation is the single largest determinant of dilution. The fight worth having is not 'is this the highest valuation I can get?' — it is 'is this valuation consistent with a clean follow-on round at 1.8–2.4× the entry within 18 months?' If the answer is no, the valuation is too high. We have watched many companies down-round from over-priced pre-seed because the seed bar moved up faster than the company did.
2. ESOP — pre-money vs post-money
This is the most expensive single line for founders that most pre-seed term sheets get wrong. If the ESOP top-up is computed pre-money, the dilution comes entirely from the founders. If post-money, it is shared between founders and new investors. The difference, on a 10% top-up at a ₹40 Cr pre-money, is roughly 1.6% additional founder dilution. Always negotiate post-money.
3. Liquidation preference
1× non-participating preference is the Indian market standard at pre-seed and seed. Anything richer — 1.5×, 2×, participating with cap — is a non-market term that materially changes downside economics for the founder in any scenario short of a perfect exit. Push back, hard. If the lead refuses, ask why. The answer will tell you a lot about who you are taking money from.
4. Anti-dilution
Broad-based weighted-average anti-dilution is market. Full-ratchet anti-dilution is not — it converts a down-round into catastrophic founder dilution. We have seen full-ratchet appear on Indian pre-seed term sheets recently; it is the single clause we consider a deal-breaker if a fund refuses to move.
5. Board composition
At pre-seed, founders should retain board majority. A typical clean board: 1 founder + 1 founder + 1 investor observer (non-voting). At seed: 1 founder + 1 investor + 1 mutually-agreed independent. Any term sheet at pre-seed that requests a voting investor seat with no founder counterbalance is asking for too much control too early.
The five things to let go
- Information rights — institutional investors need them; the boilerplate is reasonable.
- Pro-rata rights — fair to grant; you will want a follow-on cheque from your existing investors anyway.
- Founder vesting — 4-year vesting with a 1-year cliff is market. Push back on 5-year or no-cliff, but accept the standard.
- Standard drag-along / tag-along mechanics — these are protections for both sides, fight only on the threshold.
- Governing law and dispute resolution — Indian seat is standard, the boilerplate is reasonable.
How to actually run the negotiation
Three procedural tips that disproportionately influence the outcome:
- Negotiate the term sheet in writing, not on calls. Email gives you time to think; calls give the investor time to compress your thinking.
- Talk to two other founders who took money from the same fund, in the last 18 months. Their experience predicts yours more than any reference call the fund offers.
- Take 36 hours before you sign. Investors who pressure for a same-day signature are telling you something about how they will operate as your partner.
“A term sheet is a forecast of your next five years with this investor. The wrong investor at market terms is more expensive than the right investor at slightly worse terms. Choose the partner, then negotiate the document.”
What we put in our own term sheets
For full transparency — our standard Pratyaya pre-seed term sheet is 3 pages, market on every clause above except two: we always negotiate ESOP post-money, and we always ask for a founder-friendly anti-dilution. We do not put in protective provisions beyond a short list of material corporate actions, we do not request board seats at pre-seed, and we close in 21 days of diligence. The shortest path to the right deal is offering one.