Before signing a seed funding term sheet, check the ownership calculation, investor economics, decision rights, founder obligations and any clauses intended to bind immediately. A headline valuation is only one part of the deal. Ask how the terms operate in a successful exit, a difficult exit and the company's ordinary working week.

A term sheet is also a useful place to resolve significant commercial differences before the parties spend time on detailed documentation.

Identify what is binding now

Do not assume the entire document is non-binding because it is called a term sheet. Its wording and surrounding circumstances matter. Identify whether confidentiality, exclusivity, costs, dispute resolution or other provisions are intended to operate immediately. Contract formation depends on substance and applicable law. [Source 1]

For an exclusivity clause, discuss the duration, the activities it restricts, expected progress during that period and how it ends. An open-ended restriction can leave the founder unable to progress alternatives while the original discussion stalls.

Clarify who pays transaction costs if the deal does not close and whether any reimbursement is capped. Put dates against the next decisions rather than treating a signature as an investment commitment.

Reconcile valuation with the ownership calculation

Ask whether the stated valuation is pre-money or post-money, what the fully diluted share count includes and whether an employee pool is created or increased before investment.

In a simple hypothetical round, ₹1 crore invested at a ₹4 crore pre-money valuation produces a ₹5 crore post-money valuation. The investor receives 20% on that simplified basis. This calculation assumes no pool increase, convertible instruments, secondary sale, fees or other adjustments.

Request an attached before-and-after cap table. If the percentage in the model differs from what the commercial discussion suggested, resolve the difference before agreeing the term sheet.

Model the liquidation preference in rupees

A liquidation preference describes agreed priority in distributing proceeds on specified events. Definitions, ranking, conversion rights and participation can materially change its effect.

Suppose an investor puts in ₹1 crore for 20%, with a simplified 1x non-participating preference. If ₹3 crore is available for shareholders in an event to which that preference applies, the investor might choose ₹1 crore rather than converting to receive 20%, or ₹60 lakh. At ₹10 crore available, conversion would yield ₹2 crore. This is an illustration of that assumed clause, after creditor claims and before individual taxes, not a statement that every exit follows this structure.

A participating preference can produce a different distribution. Ask for worked calculations using the actual wording and more than one exit value.

Check how decisions will be made after closing

Separate board representation, information rights and matters needing investor consent. Ask what requires approval, whose approval counts and how quickly a request must be addressed.

Thresholds should reflect the size and operating needs of the business. If an ordinary budgeted purchase requires an additional consent, discuss whether that is intentional. Also check what happens when the investor's holding falls below an agreed level or a later round introduces another investor.

Founders should understand these terms as future operating instructions. A right that sounds remote during fundraising may affect hiring, borrowing, budgets or the next share issue.

Review founder obligations and future rounds

Look closely at founder vesting, good-leaver and bad-leaver treatment, transfer restrictions, warranties and personal liability. If vesting restarts, calculate what that means for work already done and the consequences of illness or an agreed departure.

Ask how anti-dilution provisions work if a future round prices shares lower. Distinguish price-protection adjustments from a right to invest more money to maintain a percentage. A founder should be able to explain the difference without relying on the clause's label.

For an overseas investor, structure and economics must also fit the foreign-investment framework. The RBI's directions restrict assured exit pricing for relevant equity instruments. A commercial promise must be reviewed in that context before it reaches definitive documents. [Source 2]

Prepare a short decision note before signing

Record the agreed economics, unresolved items, binding obligations, expected documents and conditions to closing. Send one consolidated set of commercial decisions to the drafting advisers so competing versions do not develop in parallel.

Frequently asked questions

Does a signed term sheet mean the funding has arrived?

No. Check the commitment, conditions, definitive agreements and closing process. Do not plan cash payments on the assumption that signature equals available funds.

Is the highest valuation always the strongest offer?

Compare dilution, preferences, control, founder obligations and execution certainty alongside valuation. A higher number can come with more demanding terms.

Should legal review wait for the long-form documents?

Review significant terms before they become the agreed commercial baseline. It is often easier to resolve an issue before the parties invest in drafting around it.

Use our investor diligence checklist alongside the negotiation. Corpernicus provides fundraising documentation support. Book an introductory call to discuss the proposed round.

Sources checked 29 September 2026

General information. The economic examples depend entirely on their stated assumptions and do not describe a particular investment offer.