Pre-Seed Term Sheets in India: Every Clause Explained (2026)

First: what's binding and what isn't

A term sheet is mostly an expression of intent. Zerodha Varsity describes it as "a non-binding document (meaning legally non-enforceable)" that comes before the final deal documents. The Startup India template says the same, except for its general clauses (expenses, confidentiality, exclusivity, termination and governing law), which are binding. Treelife's guide makes the same split: mostly non-binding, with confidentiality, no-shop and sometimes cost provisions binding.

Push back on: nothing here, but read the binding clauses as carefully as you'd read a contract, because they are one.

1. The instrument

What it means: what the investor actually receives. The Startup India template uses plain equity shares. Treelife notes that foreign VCs typically use compulsorily convertible preference shares (CCPS), while some domestic funds use compulsorily convertible debentures (CCDs), which carry different tax and insolvency implications. Small pre-seed rounds may also use a convertible note or an iSAFE, which is a SAFE-style agreement structured as CCPS. Our guide to SAFE vs iSAFE vs convertible note in India explains which of these an Indian company can use and the thresholds that apply.

Push back on: a US SAFE template sent "as is" to an Indian company, and any instrument whose tax and FEMA treatment nobody on your side has checked.

2. Valuation and cap

What it means: for a priced round, the pre-money valuation and the investment amount set the price per share. For a convertible instrument, a valuation cap sets the highest valuation at which the money converts later. The Startup India template allows the investment amount, and so the post-money valuation and shareholding, to change before definitive documents are signed.

Typical vs aggressive: we didn't find a reliable source for typical Indian pre-seed valuations, so we won't quote one. Treelife's point is more useful: the number that matters is your fully diluted post-money ownership, not the headline valuation. A higher valuation with a large pre-money option pool can leave you with less than a lower valuation without one.

Push back on: any discussion of valuation that doesn't show a post-money cap table, including the ESOP pool and every convertible instrument on an as-converted basis.

3. Liquidation preference

What it means: who gets paid first, and how much, when the company is sold or wound up. Zerodha Varsity says the usual investor request is "a 1x liquidation preference" and advises founders to "always ensure you have non-participating 1x liquidation preference". The Startup India template's version gives the investor the higher of their investment amount or their pro-rata share on an as-converted basis, which is the non-participating structure.

Typical vs aggressive: Treelife lists 1x non-participating as founder-friendly and participating preferred, "especially uncapped", as the thing to watch for. Participating means the investor takes their money back and a share of what's left.

Push back on: any multiple above 1x and any participation. If participation can't be avoided, Treelife suggests a cap of around 2–3x.

4. Anti-dilution

What it means: protection for the investor if you later raise at a lower price (a "down round"). There are two main methods. Zerodha Varsity calls the weighted average method "the less aggressive and founder-friendly option"; the other is full ratchet, which reprices the investor's shares to the new, lower price in full.

Typical vs aggressive: the Startup India template uses broad-based weighted average. Treelife describes broad-based weighted average as the standard and full ratchet as a "walk away" term.

Push back on: full ratchet, a "narrow-based" formula, and a short list of exceptions. Make sure ESOP grants and conversion of existing instruments don't trigger the adjustment.

5. Board seats and observer rights

What it means: who sits on the board and who can attend meetings. The Startup India template gives the investors one nominee director, lets the promoters nominate the rest, and adds one board observer for the investors. An observer attends meetings but does not vote.

Typical vs aggressive: Treelife's founder-friendly benchmark is two founder seats, one investor seat and one jointly agreed independent director. It flags an investor-nominated "independent" director as the aggressive version.

Push back on: losing board control at pre-seed. If several angels are investing, consider whether a single observer seat, or a lead investor's seat, can cover the whole round.

6. Affirmative votes (reserved matters)

What it means: decisions the company can't take without the investor's approval. The Startup India template requires the investor director's approval for "customary" matters to be listed later in the definitive documents.

Typical vs aggressive: Treelife's founder-friendly version limits these to major corporate actions. Its aggressive examples include consent over hiring a CFO, low salary thresholds and operational vetoes.

Push back on: an open-ended list. Ask for the full list in the term sheet, set sensible thresholds, and carve out ordinary-course operations.

7. Information rights

What it means: what you'll report and how often. The Startup India template asks for quarterly unaudited financials within 30 days of quarter end, audited annual financials within 60 days of year end, an annual operating plan 30 days before the year starts, and "any other operational and financial information as per the requirement of the Investors".

Push back on: the open-ended "any other information" line. Agree a fixed monthly or quarterly update instead, and think about whether every small angel needs the same rights as the lead.

8. Pro-rata (pre-emptive) rights

What it means: the right to invest in future rounds to keep the same percentage. The Startup India template gives investors a pro rata right to participate in any future share issue on the same terms, with exceptions to be agreed later.

Typical vs aggressive: Zerodha Varsity suggests a "fallaway threshold", for example 5%, below which an investor loses the right.

Push back on: pro-rata rights for very small holdings, and "super pro-rata" (the right to buy more than their share). Make sure the exceptions cover ESOP grants.

9. ROFR, tag-along and drag-along

These three decide what happens when someone wants to sell shares.

•Right of first refusal (ROFR): in the Startup India template, if a promoter wants to sell, they must first offer the shares to the investors at the same price.

•Tag-along: if the investors don't use their ROFR, they can require the buyer to purchase their shares too, on the same terms.

•Drag-along: lets a majority force others to sell. In the template, if there is no IPO within five years or strategic sale within six years of closing, the investors can sell to a third party and drag the promoters along.

Typical vs aggressive: Treelife's founder-friendly benchmark for drag-along is approval by 75% or more of all shareholders, with a price floor. The aggressive version is a simple-majority drag with no floor.

Push back on: a drag that a single small investor can trigger, a drag without a minimum price, and short exit deadlines.

10. Founder vesting and lock-in

What it means: vesting means founders "earn" their own shares over time, so a co-founder who leaves early doesn't keep everything. A lock-in stops founders from selling.

Typical vs aggressive: the Startup India template treats 25% of each promoter's shares as vested at signing. The remaining 75% vests over four years from closing: nothing in the first year, then equal quarterly instalments over the next three years. It also suggests a three-year lock-in on promoter transfers, with sales allowed only with investor approval. Treelife's founder-friendly benchmark is three to four years with a one-year cliff and credit for time already served. Its aggressive version is a fresh four-year schedule with no credit.

Push back on: vesting that ignores the time you've already put in, and "bad leaver" triggers that are too broad. Treelife suggests limiting bad leaver to proven fraud or wilful misconduct.

11. ESOP pool

What it means: shares set aside for future employees. The Startup India template asks for a pool of between a minimum and maximum percentage of the post-issue share capital on a fully diluted basis.

Typical vs aggressive: the size matters, but so does when the pool is created. A pool created before the investment ("pre-money") dilutes only existing shareholders, mostly the founders. Treelife's term sheet guide treats a post-money pool as founder-friendly and suggests 10–15% for seed. It flags a pre-money pool demanded as a closing condition as aggressive. Our ESOP pool sizing guide goes deeper.

Push back on: a pool sized to a headline percentage rather than a hiring plan for the next 18–24 months.

12. Exclusivity and confidentiality

What it means: exclusivity (a "no-shop") stops you from talking to other investors for a set period. Confidentiality keeps the terms private.

Typical vs aggressive: Treelife's founder-friendly range for a no-shop is 30–45 days, and it flags anything above 60 days without a closing timeline. The Startup India template uses a 60-day exclusivity and has the term sheet lapse after 90 days unless extended.

Push back on: long exclusivity with no closing date. Tie the no-shop to milestones, and make sure confidentiality still lets you talk to your lawyer, CA and co-founders.

13. Conditions precedent and costs

What it means: conditions precedent (CPs) are what must happen before the money arrives. The Startup India template lists legal and financial due diligence "to the satisfaction of the Investors", regulatory approvals, signed definitive documents, founder employment agreements, amended articles of association, no material adverse change, and "any other conditions precedent that may be deemed necessary by the Investor(s)". The same template has the company pay the basic transaction costs, including due diligence and stamp duty.

Push back on: the open-ended "any other conditions" line, CPs that move dilution onto founders (such as creating the pool pre-money), and uncapped costs. Ask for a fixed CP list and a cap on the investor legal fees the company pays.

Pre-seed term sheet checklist

Before you sign, check that you can answer yes to each of these:

1. Do you know which clauses are binding (usually confidentiality, exclusivity, costs, governing law)?
2. Is the instrument right for an Indian company, and has someone checked its tax and FEMA treatment?
3. Have you seen a post-money, fully diluted cap table, including the pool and all convertibles?
4. Is the liquidation preference 1x and non-participating?
5. Is anti-dilution broad-based weighted average, with ESOP grants excluded?
6. Do founders keep board control, and is any investor seat or observer seat proportionate?
7. Is the list of reserved matters written out and limited to major decisions?
8. Are information rights fixed, with no open-ended "any other information" line?
9. Do pro-rata rights have a sensible threshold and exceptions?
10. Does drag-along need a high approval threshold and a price floor?
11. Does founder vesting credit time already served, with narrow bad-leaver triggers?
12. Is the ESOP pool sized to a hiring plan, and is it clear whether it's pre- or post-money?
13. Is exclusivity short and tied to a closing date?
14. Is the CP list closed, and are the costs you'll pay capped?

If any answer is no, that's your negotiation list. Before you get there, it helps to know how angels evaluate pre-seed startups, since the people offering the terms are judging you on more than the numbers.

Find investors who fit

The best term sheets usually come from investors who already fit your stage and sector. Cleya helps Indian founders meet them. It proposes a few introductions at a time, each with the reason it's a fit, and contact details are shared only when both sides accept, or when a Cleya curator introduces you directly.

Ready to meet investors who fit what you're building? Apply to join Cleya. You're in as soon as you apply — check your email.

Sources

•Startup India: Term Sheet (Equity) Template, India (LetsVenture, November 2016)

•Treelife: Term sheet negotiation for startups in India (June 2026)

•Zerodha Varsity: What is a term sheet? (December 2023)

•Cleya: SAFE vs iSAFE vs convertible note in India, which lists its own sources on instruments