This term sheet is non-binding except for the clauses expressly stated to be binding. It is a summary of the principal terms on which the Investors are prepared to proceed, and is not an offer capable of acceptance. Definitive documents — a Share Subscription Agreement and a Shareholders’ Agreement — will govern the investment.
Term Sheet
Series [SERIES] Preferred Round — [COMPANY NAME]
This term sheet is non-binding except for the clauses expressly stated to be binding. It is a summary of the principal terms on which the Investors are prepared to proceed, and is not an offer capable of acceptance. Definitive documents — a Share Subscription Agreement and a Shareholders’ Agreement — will govern the investment.
| Item | Terms |
|---|---|
| Company | [COMPANY NAME], a private limited company incorporated under the Companies Act, 2013, CIN [CIN], registered office at [ADDRESS] (the "Company") |
| Founders | [NAME 1], [NAME 2], [NAME 3] (together, the "Founders") |
| Lead Investor | [LEAD INVESTOR] (the "Lead Investor") |
| Other Investors | [NAMES] (with the Lead Investor, the "Investors") |
| Date | [DATE] |
| Expiry | This term sheet lapses if not signed by [DATE] |
1. The Investment
| Term | Position |
|---|---|
| Round size | ₹ [TOTAL ROUND SIZE] (a commercial decision — specify) |
| Lead Investor commitment | ₹ [AMOUNT] |
| Other Investor commitments | ₹ [AMOUNT] |
| Pre-money valuation | ₹ [PRE-MONEY], on a fully diluted basis including the ESOP Pool described below (a commercial decision — specify) |
| Post-money valuation | ₹ [POST-MONEY] |
| Instrument | Compulsorily Convertible Preference Shares of face value ₹ [FACE VALUE] each ("CCPS"), each initially convertible into one Equity Share, subject to the anti-dilution adjustment below |
| Price per CCPS | ₹ [PRICE PER SHARE], being ₹ [FACE VALUE] face value and ₹ [PREMIUM] premium |
| Investor shareholding | [PERCENTAGE] per cent of the fully diluted share capital immediately after Completion |
| Tranching | Single tranche at Completion / Tranche 1 of ₹ ______ at Completion and Tranche 2 of ₹ ______ on achievement of the milestones in Annexure A (a commercial decision — specify) |
| Use of proceeds | [DESCRIBE — e.g. product engineering, go-to-market, working capital]. Not to be applied towards repayment of Founder loans, buy-back of existing securities or bonuses to Founders without Investor consent. |
2. Capitalisation
The capitalisation of the Company immediately before and immediately after Completion, on a fully diluted basis, is set out below. Final numbers will be agreed in the definitive documents.
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These notes accompany the template and explain the drafting choices, the compliance points and the mistakes most often made with this document. They appear as a final page in the Word file, intended to be deleted before the document is executed.
Only Clause 8 binds. Everything else is a statement of intention. Say so expressly, as this template does — a term sheet that is silent on the point invites an argument that the parties had concluded a contract. Exclusivity, confidentiality and conduct-of-business covenants are what the Investor is actually buying at this stage, and the Company should be alert to the fact that it is giving up its ability to run a process for the exclusivity period.
Indian venture rounds are almost always subscribed in compulsorily convertible preference shares. CCPS are treated as equity instruments under the Foreign Exchange Management (Non-debt Instruments) Rules, 2019, which keeps a foreign investor outside the external commercial borrowing framework, and they carry the liquidation preference without which the economics of a preferred round do not work. Optionally convertible instruments are treated as debt and should not be used for a venture round involving a non-resident.
Section 56(2)(viib) of the Income-tax Act, 1961 was omitted by the Finance (No. 2) Act, 2024 with effect from assessment year 2025-26, and has not been re-enacted in the Income-tax Act, 2025. A company may now issue shares at any premium without the excess over fair market value being taxed in its hands. That removes a tax exposure; it does not remove the need for a defensible valuation. Section 62(1)(c) of the Companies Act, 2013 still requires a registered-valuer report for a preferential allotment, the FEMA pricing floor still applies to non-resident subscribers, and unexplained share capital can still be examined as an unexplained cash credit.
Where any Investor is a person resident outside India, the issue price may not be below fair market value determined under Rule 21 of the NDI Rules by an internationally accepted pricing methodology on an arm’s length basis, certified by a chartered accountant, a SEBI-registered merchant banker or a practising cost accountant. Practice treats the certificate as valid for 90 days. Shares must be allotted within 60 days of receipt of the money, and Form FC-GPR filed on the FIRMS portal within 30 days of allotment. Note that the RBI has published draft foreign investment rules intended to replace the NDI Rules; until those are notified, the NDI Rules govern — confirm the position at the time of the round.
A put option or exit right that guarantees a non-resident investor a fixed or assured return converts an equity instrument into debt in the eyes of FEMA and is not permitted. An exit right expressed as a right to require a sale process, or a put exercisable at fair market value determined at the time of exercise, is the usual structure. Draft Clause 5.6 with that constraint in mind if any Investor is a non-resident.
Clause 6.5 deliberately omits any post-termination non-competition covenant on the Founders. Section 27 of the Indian Contract Act, 1872 voids agreements in restraint of trade, and Indian courts have consistently declined to enforce post-employment non-competes. Non-solicitation of employees and customers, confidentiality, and restraints operating during the engagement remain enforceable. Investors used to other jurisdictions frequently ask for a non-compete; it is better to explain why it will not hold than to include a clause that gives false comfort.
A shareholders’ agreement binds only the parties to it. To bind the Company and to be enforceable against a transferee, transfer restrictions, reserved matters, drag rights and preference terms must be written into the Articles of Association and the amendment registered. The proviso to Section 58(2) of the Companies Act, 2013 makes a contract for the transfer of securities of a private company enforceable as a contract, but the practical position is unchanged: amend the Articles.
Whether the pool expansion is taken pre-money or post-money is the single most commonly misunderstood economic term in a term sheet. Pre-money, the dilution falls entirely on the existing shareholders and the Investor’s effective valuation is lower than the headline. Post-money, it is shared. State it explicitly. Run the capitalisation table both ways before signing.
Because Indian company law does not permit an issue of shares below face value, an anti-dilution adjustment must operate by changing the conversion ratio of the CCPS rather than by repricing. Broad-based weighted average is the market norm; full ratchet transfers the entire risk of a down round to the Founders and should be resisted.
A non-participating 1x preference means the Investor takes the higher of its money back or its as-converted share. A participating preference means it takes both. On a modest exit the difference between the two is the difference between a Founder outcome and no Founder outcome. Model the waterfall at three exit values before agreeing the term.
Reverse vesting on existing Founder shares is standard and is not a signal of distrust; it protects the Founders from each other as much as it protects the Investor. Negotiate credit for time already served, a narrow definition of Bad Leaver, and acceleration on a change of control.
Stamp duty on the term sheet itself is nominal and State-specific. On issue of the CCPS, duty of 0.005 per cent applies under the Indian Stamp Act, 1899 as amended. Corporate filings on Completion include MGT-14 for the special resolution and PAS-3 for the return of allotment, with PAS-4 offer letters and a separate bank account for the subscription money under the private placement provisions of Section 42.
Reflects Indian law current as of {{DATE OF USE}}. Company law, FEMA and tax positions in a venture round move frequently — have the term sheet reviewed before signature, and the definitive documents drafted, by counsel.
This is a ready-to-use template provided for convenience. Laws and requirements change, and every situation is different — please have it reviewed by a qualified professional (a lawyer, company secretary, or chartered accountant as relevant) before you rely on it.