A term sheet is a crucial document in the fundraising process, outlining the key terms and conditions under which an investment will be made. It serves as a non-binding agreement that provides a framework for the final legal documents. Here’s everything you need to know about term sheets while fundraising:

Purpose of a Term Sheet

The primary purpose of a term sheet is to summarize the essential aspects of a proposed investment deal. It helps both the investor and the startup (or company) align their expectations and understand the basic terms before moving on to more complex legal agreements.

No. of Points	Section	Transaction Details
1.1	Promoter(s)	The Company is currently controlled by [Promoter 1] and [Promoter 2].
1.2	Current Capital Structure	The current paid up and issued share capital comprises [number] equity shares with a face value of INR [value] per share and [number] preference shares with a face value of INR [value] per share. The Promoters hold [percentage]% in the current paid up and issued share capital of the Company.
1.3	Instruments	Equity shares having a face value of INR [value] each at a price of INR [price] per share (“Equity Shares”). “Definitive Documentation” shall have the meaning ascribed to it under Clause 3.1 of this Term Sheet.
1.4	Valuation	For the purpose of the Proposed Transaction, the pre-money valuation of the Company is INR [value].
1.5	Proposed Transaction	i. Subject to applicable law, the Investor proposes to invest up to INR [amount] (the “Investment Amount”) into the Company. ii. The Parties will work towards achieving completion of the Proposed Transaction, including the remittance of the Investment Amount and issue of corresponding Equity Shares (“Closing”) within the timeframe specified in the SSSHA. iii. The shareholding pattern of the Company, immediately upon Closing shall be as set forth in Schedule 2 hereunder.
1.6	Advisory Equity	The Company agrees to issue at the time of Closing, to [Advisor’s Name], Equity Shares (“Advisory Equity”) equivalent to [percentage]% of [value] in consideration of the advisory and mentoring services rendered by [Advisor’s Name]. [LV Note: This is an optional clause and is to be included if an investor is getting advisory equity.]

No. of Points	Section	Transaction Details
1.7	Key Considerations
1.8	Board Composition	The Board of Directors of the Company shall comprise of [number] directors, including 1 (one) Investor Director nominated by the investors. The Investors are entitled to nominate 1 (one) Board Observer.
1.9	Preemptive Rights	Investors shall have a pro rata right to participate in any future share issue by the Company to third parties, retaining their shareholding on a fully diluted basis. Preemptive rights exceptions will be detailed in the Definitive Documentation.
2.1	Anti-Dilution Protection	If the Company issues equity shares or convertible instruments at a price lower than the price paid by the investors, they shall receive anti-dilution protection on a broad-based weighted average basis. The Company must issue additional equity shares to the investors as necessary.
2.2	Promoters Lock-In	Promoters cannot transfer their shares for a period of [3 (three)] years from the date of Closing. Transfers are allowed with prior written approval from the investors.
2.3	Vesting of Promoters Shares	25% of the shares held by each Promoter shall vest on the date hereof. The remaining 75% will vest over a 4-year period, with quarterly vesting starting after the first year. Unvested Shares will be disposed of if the Promoter’s employment is terminated during the Vesting Period.
2.4	Right of First Offer (ROFO)	If a Selling Investor intends to sell their shares, they must first offer to sell them to the Promoters. If declined, they can sell to Non-Selling Investors or third parties, provided the sale price is not lower than the Offer Price. The Promoters and Non-Selling Investors can purchase shares proportionate to their holdings.

No. of Points	Section	Transaction Details
2.5	Investors’ Right of First Refusal	Selling Shareholders must first offer their shares (“ROFR Shares”) to all Investors at the same price they offer to others. Non-Selling Shareholders can purchase these shares proportionate to their holdings.
2.6	Tag-Along Right	If Promoters or other shareholders decide to sell their shares, and Investors do not exercise their right of first refusal, Investors can require that the Buyer also purchase their shares on the same terms. Promoters cannot sell unless this condition is met.
2.7	ESOP	The Company will implement an Employee Stock Option Plan (ESOP) constituting at least []% and not exceeding []% of the post-issue share capital (fully diluted). This plan, approved by the Investor Director, will be used to attract and retain talent, with specifics detailed in the Definitive Documentation.
2.8	Affirmative Voting Rights	Certain decisions cannot be made without prior approval from the Investor Director at a Board meeting. Detailed affirmative rights will be included in the Definitive Documentation.
2.9	Liquidation Preference	Investors have a right to vote based on their shareholding and will have a preference in distributions during liquidation events. They will receive either a pro-rata share or their Investment Amount plus unpaid dividends, whichever is higher. Detailed terms will be in the Definitive Documentation.

No. of Points	Section	DOCUMENTATION AND INCIDENTAL MATTERS
2.10	3.1 Definitive Documentation	Parties will enter into a Share Subscription and Shareholders Agreement (SSSHA) within 90 days of signing this Term Sheet. The SSSHA, the restated articles of association, and other incidental documents will be collectively referred to as “Definitive Documentation.”
2.11	3.2 Conditions Precedent to Closing	Conditions include: legal and financial due diligence satisfaction, obtaining necessary regulatory approvals, executing Definitive Documentation, an employment agreement with Promoters, amending the Company’s articles and memorandum to permit equity issuance, no material adverse changes, and any other conditions deemed necessary by the Investors.
2.12	3.3 Standstill Provisions	From the Effective Date until execution of Definitive Documentation or termination of this Term Sheet, the Company must not, without Investor consent: enter commitments or transactions outside the ordinary course of business, incur substantial debt, change senior employees, or alter share capital.
2.13	3.4 Representations and Warranties	Each party is responsible for obtaining necessary statutory approvals for the Proposed Transaction. The Definitive Documentation will outline customary events of default, including breaches of its provisions by any party.

No. of Points	Section	GENERAL
3.0	Expenses	The Company shall bear all basic and requisite transactional expenses (consultancy/advisory fees, due diligence, stamp duty, etc.). Any additional expenses initiated by an Investor will be borne by that Investor.
3.1	Confidentiality	All parties must keep information about the Proposed Transaction confidential and cannot disclose it to third parties without prior written consent. Standard exceptions apply, and disclosures to representatives must be on a need-to-know basis.
3.2	Exclusivity	For 60 days after executing this Term Sheet, neither the Promoters nor the Company can engage in discussions or negotiations with other potential investors or provide related information, indicating they are bound by this clause.
3.3	Termination	This Term Sheet will terminate 90 days after execution unless mutually extended or canceled. It will also automatically terminate upon the replacement by the Definitive Documentation.
3.4	Amendment	Terms of this Term Sheet can be amended by mutual written consent of the parties.
3.5	Governing Law and Jurisdiction	This Term Sheet will be governed by Indian laws, with any disputes related to its validity, interpretation, or implementation subject to the exclusive jurisdiction of the specified courts.