Term sheet explainer

1× non-participating is the market standard.

When the company is sold or wound up, investors get their money back first, before founders and employees. "1x non-participating" means the investor takes the larger of 1× their investment or their ownership share of the sale, not both. "Participating" means they take their money back AND a share of what is left, which reduces what founders get in a modest sale.

Broad-based weighted average is the market standard.

If you later raise money at a lower price (a down round), this clause gives earlier investors extra shares so their price is adjusted down. "Broad-based weighted average" adjusts gently and is market standard. "Full ratchet" resets their price all the way to the new lower price and can hand them a large chunk of founder equity.

Plain conversion into equity is standard.

Investors in India usually get compulsorily convertible preference shares (CCPS). These convert into ordinary equity shares, normally 1:1, at the investor’s choice or automatically at an IPO or a set date. Watch for conversion ratios that change with performance targets: they work like a hidden valuation reset.

Pro-rata rights are normal.

Lets the investor buy enough shares in future rounds to keep their ownership percentage. This is normal. "Super pro-rata" (the right to buy more than their share) can crowd out new investors you want.

The drag needs a broad approval or a minimum price.

If a set majority agrees to sell the company, everyone else must sell on the same terms. Useful for clean exits, but founders should make sure investors cannot force a cheap sale on their own, too early.

Tag-along rights are normal.

If founders sell their shares, investors can join the sale and sell the same proportion on the same terms. Standard and fair; it mainly limits founders selling secondary shares alone.

ROFR / ROFO is common and usually reasonable.

Before a shareholder sells to an outsider, the others (or the company) get the first chance to buy (ROFR: match the outsider’s offer; ROFO: make the first offer). Common and usually reasonable.

Founders appear to keep board control. Confirm the numbers.

Sets who sits on the board. At seed, founders usually keep control (for example 2 founders and 1 investor). Watch for investors getting a majority or a casting vote, or an "independent" director the investors effectively choose.

Vetoes appear limited to fundamental matters.

A list of decisions that need the investor’s approval. Vetoes over big events (selling the company, new share classes, changing investor rights) are normal. Vetoes over day-to-day matters (budgets, hiring, salaries, small contracts) slow you down and shift control.

The pool terms look normal.

Shares set aside for employee stock options. If the pool is created or enlarged "pre-money", it dilutes only the existing shareholders (mostly founders), which quietly lowers your effective valuation. Size the pool to a real 18–24 month hiring plan.

Up to 4 years with a cliff is common.

Founders’ shares "earn back" over time, often 4 years with a 1-year cliff, and founders may not sell during a lock-in. If a founder leaves early, unvested shares can be bought back cheaply. Ask for credit for time already worked and fair good-leaver terms.

45 days is within the usual range.

For a fixed period after signing the term sheet, you agree not to talk to other investors. This is one of the few binding clauses. 30–60 days is common; longer periods give the investor leverage if the deal drags.

Information rights are normal.

What reports you must send investors and how often: usually audited annual accounts, quarterly or monthly management accounts (MIS) and the annual budget. Normal; just make sure the frequency is something your team can actually deliver.