Before you model anything, understand what you're dealing with.
12 key term sheet clauses — what they mean, what to watch for.
The value of your company before the investor’s money goes in. If you raise $1M at a $4M pre-money valuation, post-money is $5M and the investor owns 20%.
Confusing pre-money and post-money. Always clarify which valuation is being quoted — the difference directly changes how much equity you give away.
Pre-money = ₹8 Cr. Investment = ₹2 Cr. Post-money = ₹10 Cr. Investor equity = ₹2 Cr ÷ ₹10 Cr = 20%. If the investor also requires a 10% ESOP pool created pre-money (the option pool shuffle), that dilution falls entirely on the founders — their effective pre-money is lower than the headline number.
The option pool shuffle can reduce your effective valuation by 10–20%. Model it in CapLab before you agree.
The amount being invested and the resulting ownership percentage. Equity = Investment ÷ Post-Money Valuation. Simple math — but easy to get wrong under pressure.
Focusing only on the cheque size without understanding the dilution. A larger cheque at a lower valuation can be worse than a smaller cheque at a higher one.
₹2 Cr into ₹8 Cr pre-money = ₹10 Cr post-money. Investor gets 20%. But if ₹50L in convertible notes also convert at close, founders bear that dilution too — the 20% already assumes those convert. Always model the fully-diluted cap table before agreeing to any equity number.
Run the full dilution scenario in CapLab including any outstanding convertibles before agreeing to any equity number.
How much investors get paid before founders see any proceeds at exit. A 1× non-participating preference is standard. A 2× or participating preferred is founder-hostile — it lets investors double-dip.
Assuming 1× is fine regardless of participation. Participating preferred means investors get their money back AND participate in remaining proceeds. At a modest exit, founders can walk away with almost nothing.
Investor: ₹2 Cr for 20%. Exit at ₹8 Cr.
1× Non-Participating: Investor takes higher of ₹2 Cr (preference) or 20% × ₹8 Cr = ₹1.6 Cr → takes ₹2 Cr. Founders get ₹6 Cr.
1× Participating: Investor takes ₹2 Cr first, then 20% of remaining ₹6 Cr = ₹1.2 Cr more. Investor total: ₹3.2 Cr. Founders get ₹4.8 Cr — ₹1.2 Cr less on the same exit.
Push for 1× non-participating. Anything else eats your exit upside disproportionately — run the numbers in the Simulate stage to see exactly how much.
Protects investors if you raise a future round at a lower valuation (a down round). The investor’s conversion price adjusts downward so they get more shares. Broad-based weighted average is standard. Full ratchet is highly punitive to founders.
Not modelling what anti-dilution does to founder ownership in a down round scenario. The impact can be severe — especially with full ratchet, where even a tiny down round resets the investor’s entire price.
Investor bought 285,714 shares at ₹70/share (₹2 Cr). Down round at ₹42/share.
Broad-based weighted average: New conversion price ≈ ₹58. Investor gets ~343,000 equivalent shares — extra ~57,000 shares. Limited dilution hit to founders.
Full ratchet: Price drops to ₹42. Investor's ₹2 Cr now equals 476,190 shares — an extra 190,476 shares from nowhere, severely diluting founders even on a tiny down round.
Model a hypothetical down round in the Simulate stage to see exactly how much anti-dilution would hit you under each scenario before accepting any formula.
How many board seats exist and who controls them. At seed, 2–1 (2 founders, 1 investor) or 3–2 is standard. Giving investors majority control early is dangerous — they can remove you as CEO.
Giving away board control too early in exchange for a higher valuation. Once an investor has board majority, every major decision — including your own role — requires their approval.
A 5-seat board (2 founders, 1 investor, 2 independents): any contentious vote goes to the independents. If the investor nominated one independent and the founders nominated the other, the swing-vote independent decides everything. Who nominates each independent is more important than who holds the investor seat.
Never give investors board majority before Series B unless you have no other option. Founder majority on the board is one of the most important protections you have.
How founders and employees earn equity over time. Standard is 4 years with a 1-year cliff. The cliff means you get nothing if you leave in year 1 — after the cliff, shares vest monthly for the remaining 3 years.
Not asking for acceleration on acquisition. If the company is sold and you’re terminated, you should vest immediately — not be trapped working for an acquirer for 3 more years to earn equity you’ve already earned in spirit.
1,000,000 shares. Vesting starts Jan 2025.
Jan 2026: 250,000 shares vest (cliff).
Feb 2026 onwards: ~20,833 shares vest monthly.
Company acquired Jun 2026, founder fired immediately: all remaining ~583,000 unvested shares vest instantly (double-trigger). Without this, the founder works 30 more months for an acquirer to earn equity they already built.
Single-trigger acceleration (vests on sale alone) can scare off acquirers. Double-trigger is cleaner for everyone and still protects you if you’re fired post-acquisition.
The investor’s right to participate in future rounds to maintain their ownership percentage. Standard for lead investors. Giving pro-rata to too many investors can crowd out new leads who want a meaningful allocation.
Giving pro-rata to every small angel — creates a crowded cap table and makes future lead investors nervous about getting the allocation size they need.
Investor owns 20% post-Seed. Series A raises ₹10 Cr. Pro-rata entitles them to put in ₹2 Cr (20% of round) to maintain their stake. The risk for founders: if you gave pro-rata to 8 small angels each holding 3–5%, they can collectively crowd out ₹3–4 Cr of your next round — leaving less room for the lead investor who needs a meaningful cheque to say yes.
Keep pro-rata rights limited to your lead investors. Broad pro-rata commitments become a structural drag on future fundraising.
The investor’s right to receive financial statements and board minutes. Standard is quarterly financials and annual audited accounts above a certain cheque size. Information rights keep investors informed without creating a governance burden.
Agreeing to overly burdensome reporting — such as monthly financials with 10 days’ notice — that takes significant management time to produce and distracts from building.
Monthly reporting takes 3–5 working days per cycle to prepare properly — that's up to 60 days of management time per year, every year. Quarterly is the seed-stage standard. The 45-day window matters too: tight deadlines clash with product sprints. Always negotiate the reporting deadline alongside the frequency.
Negotiate quarterly reporting over monthly. Quarterly is standard at seed stage and still gives investors full visibility without the weekly admin overhead.
Prevents you from talking to other investors while this investor completes due diligence. Protects them from being used as a stalking horse. Standard is 30–45 days — long enough for real diligence, short enough to protect you if the deal falls through.
Agreeing to 60–90 day no-shop clauses that leave you stranded — unable to talk to other investors — if the deal falls through at the last moment.
You sign exclusivity on 1 March. The investor takes 50 days to finish diligence instead of 30. You're locked out of other conversations until 19 April. If they walk, you've lost 7 weeks of warm relationships cooling off. Fix: 30 days maximum + a termination right if the investor hasn't delivered a draft SHA within the window.
Push for 30 days maximum. Anything longer and you’re handing the investor free optionality — they can walk away while you’ve burned your fundraising window.
If a majority of shareholders approve a sale, all other shareholders must also vote in favour. Protects investors from minority shareholders blocking an otherwise-approved exit — but the trigger percentage is everything.
Not checking what percentage triggers the drag-along. If it’s 50%+1 investor shares alone, investors can force a sale you don’t want at a price you wouldn’t accept.
Investor holds 30%, founders hold 60%. If drag-along triggers on investor majority alone, the investor can force a sale the founders oppose. The fix: require both a majority of investor shares AND a majority of founder shares to trigger drag-along. Neither side can force a sale without the other's agreement.
Ensure drag-along requires both a majority of investor shares AND founder consent to trigger. This prevents investors from forcing a distressed sale over your objection.
Founders cannot sell or transfer their shares without investor approval. Standard and expected — investors are backing you personally, not anonymous shareholders. This aligns your incentives with the company’s long-term success.
Not negotiating a right of first refusal for secondary sales — meaning if a co-founder wants to sell, they can sell to anyone rather than giving existing shareholders first right to buy.
Post-Series A, a secondary buyer approaches you personally. Your lock-up means you legally cannot sell — even partially — for 2 years. That's standard and expected. What's not acceptable: lock-ups beyond 24 months without a renegotiation trigger, or clauses with no carve-out for estate planning. Also ensure the lock-up terminates automatically if you're removed as CEO without cause.
Ask for a defined window (e.g. after 2 years) where limited secondary sales are permitted with board approval. It gives you an exit path without alarming investors.
Which country’s laws govern the agreement and where disputes are resolved. Usually the jurisdiction where the company is incorporated. The choice of law matters most if the deal ever goes wrong.
Agreeing to foreign jurisdiction without understanding the legal costs of disputes there — a clause that seems irrelevant at signing becomes expensive if things go badly later.
Indian company, Singapore governing law. A dispute over an anti-dilution adjustment means litigating in Singapore courts — typically ₹50–80L in legal fees just to get to a hearing. If you are an Indian company, push for Indian governing law. If you're a Singapore or Delaware holdco structure, offshore jurisdiction is standard and fine — just make sure your company structure actually matches the governing law clause.
If your investor insists on foreign jurisdiction, negotiate SIAC or ICC arbitration instead of foreign courts — it’s faster, cheaper, and more predictable than cross-border litigation.
Enter your deal once — all three simulations run from the same model.
Investor details pre-loaded from your deal. Enter only the down round price.
Know your red lines before you walk into the room.