Equity & investment

Term sheet

A non-binding document that outlines the key commercial and legal terms of a proposed investment before formal agreements are drafted.

A term sheet is the starting document in any equity fundraise. It captures the headline deal terms — valuation, investment amount, instrument type, governance rights, and exit mechanics — in a concise, readable format before lawyers begin drafting the full legal agreements. The term sheet itself is almost always non-binding (with limited exceptions such as exclusivity and confidentiality clauses), meaning either party can walk away before signing the final documents.

For a founder, the term sheet is the single most important document to scrutinise in a fundraise. Every clause that slides through unchallenged here will resurface, legally enforceable, in the Shareholders' Agreement and Share Subscription Agreement. Common pressure points include liquidation preference stacks, anti-dilution mechanics, board composition, and information rights.

In Indian practice, term sheets are typically issued by the lead investor after initial due diligence. They are signed by both parties to signal mutual intent, with a 30–60 day exclusivity window during which the founder cannot solicit competing offers. Signing does not close the deal — full legal due diligence and definitive documents follow.

Negotiating a term sheet founder-friendlier is far easier than trying to renegotiate terms embedded in a signed SHA. Founders should engage a startup-experienced lawyer at term sheet stage, not after.

Frequently asked questions

Is a term sheet legally binding?
The commercial terms (valuation, ownership, rights) are non-binding. However, specific clauses — typically exclusivity, confidentiality, and governing law — are explicitly carved out as binding. Read the term sheet carefully to identify which clauses bind you.
How long does it take to move from term sheet to closing?
In Indian early-stage deals, 45–90 days is common after term sheet signing. The time is consumed by legal due diligence, document drafting, and regulatory filings such as FC-GPR for foreign investors under FEMA.
Can a founder negotiate a term sheet or must they accept it as-is?
Everything in a term sheet is negotiable. Investors expect pushback on founder-unfriendly clauses. The key is to prioritise: fight for valuation, governance, and liquidation preference mechanics; be willing to concede on minor reporting terms.

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