The guides we wish someone had handed us at round one.

A term sheet is mostly non-binding, which lulls founders into signing quickly. The economics and control clauses inside it will be carried, almost word for word, into the definitive documents. Read these first:

• Liquidation preference. A 1x non-participating preference is the market standard in India. Participating preference means the investor takes their money back and shares the remainder — on a modest exit this can leave founders with very little.
• Anti-dilution. Broad-based weighted average is normal and defensible. Full ratchet transfers the entire cost of a down round onto the founders and should be resisted.
• ESOP pool placement. A pool created pre-money dilutes only the founders. Created post-money, it dilutes everyone. This single line often moves more equity than the valuation negotiation.
• Reserved matters. The list of decisions requiring investor consent. Fine for issuing shares or selling the company; a problem when it extends to hiring, budgets or ordinary borrowing.
• Board composition. Count the seats and count the votes. An investor director plus an independent the investor nominates is effectively two.
• Founder vesting and lock-in. Expect it. Negotiate credit for time already served and clear treatment on termination without cause.

Clauses that rarely matter as much as founders fear: exclusivity periods of a few weeks, standard confidentiality, and information rights. Give these easily; spend your negotiating capital on the six above.

The SHA and the amended articles are the binding documents. If something in the term sheet was vague, it gets settled here — usually in the drafter's favour, and the drafter is usually the investor's counsel.

• Drag-along. Understand the threshold that triggers it and whether founders can be dragged into a sale below a floor price. Ask for a minimum return condition.
• Tag-along. Should be mutual. If an investor can tag onto a founder sale, founders should be able to tag onto theirs.
• Right of first refusal and pre-emption. Reasonable, but check the notice periods. A 60-day ROFR can make a secondary sale practically impossible.
• Affirmative vote items. Push operational matters out of this list. Keep it to share issuances, changes to charter documents, related-party transactions, sale of the company and material borrowings.
• Exit and put options. Common in Indian SHAs. Note that put options against the company can raise FEMA issues where a non-resident investor is involved — assured returns to a foreign investor are not permitted.
• Non-compete and non-solicit. Check duration and geography. Indian courts will not enforce a post-employment non-compete, but a shareholder non-compete tied to your shares is a different matter.

Practical advice: have the SHA and the articles reviewed together. Where they conflict, the articles usually govern for the company, and inconsistencies between the two are the single most common defect we see in first-round documents.

At pre-seed and seed there is no defensible valuation model, and anyone presenting a DCF for a company with eleven customers is performing rather than analysing. What actually determines the number:

• How much you need, and how much you are willing to sell. Most seed rounds are 10–20% dilution. Your raise divided by that range gives the working valuation.
• Comparable recent rounds in the same sector, stage and geography — adjusted downward for India versus US benchmarks.
• Competitive tension. The honest one. Two interested investors move a valuation more than any spreadsheet.

Why the highest number can be the wrong one

A valuation you cannot grow into becomes a flat or down round eighteen months later, which triggers anti-dilution, damages morale and makes the next investor's diligence harder. We would rather back a company at a sensible number and see it raise up than watch a founder defend a headline figure they were talked into.

Methods you will hear named

Scorecard and Berkus methods for pre-revenue companies, revenue multiples once there is ARR, and the venture capital method working back from an assumed exit. Treat all of them as ways to sanity-check a number that was really set by the two factors above.

Instrument choice in India is constrained by law in ways that founders reading American advice often miss.

• SAFEs are not straightforwardly available to Indian companies. A SAFE is neither equity nor debt, which does not map cleanly onto the Companies Act or FEMA. Indian companies typically use CCPS or CCDs instead. Indian-incorporated startups issuing SAFEs to foreign investors should take specific advice.
• CCPS (compulsorily convertible preference shares) are the market standard for priced Indian rounds. They are treated as equity for FEMA purposes and permit foreign investment under the automatic route in most sectors.
• CCDs (compulsorily convertible debentures) behave similarly and are sometimes preferred for tax or timing reasons.
• Convertible notes are permitted for recognised startups from non-resident investors, subject to a minimum amount and conversion timelines under FEMA rules. Check current thresholds before relying on this.
• Ordinary equity is the simplest and the least investor-friendly. Some angels — ourselves included — will take it at small cheque sizes to keep the cap table clean.

Two practical points: pricing must respect valuation rules where a non-resident is involved, and conversion mechanics should be modelled before signing. We have seen more than one round where the conversion formula produced an outcome neither side intended.

Employee equity is where well-meaning founders create problems that take years to unwind.

• Size it to the hiring plan, not to a benchmark. 8–12% is common at seed. Creating a larger pool early only dilutes founders for hires who are not coming for two years.
• Negotiate whether the pool is pre-money or post-money. Pre-money placement is the investor's default and comes entirely out of founder equity.
• Adopt a proper scheme. An ESOP requires a board and shareholder approved plan, a grant letter, and a trust or direct-grant structure. Verbal promises of “1% when we raise” are a liability, not a plan.
• Understand the tax. In India, perquisite tax arises for the employee at exercise, on the difference between fair market value and exercise price — before there is any liquidity. Eligible startups can defer this; check whether you qualify.
• Set sensible vesting. Four years with a one-year cliff remains standard. Decide upfront how leavers are treated and put it in writing.
• Get a valuation. Grants require a merchant banker or registered valuer report in defined circumstances. Retrofitting these later is expensive and sometimes impossible.

None of this is complicated. It becomes expensive only when it is left. A rough annual picture for an Indian private limited company:

• Monthly: GST returns where registered; TDS deposits by the 7th of the following month; payroll statutory dues (PF and ESI where applicable).
• Quarterly: TDS returns; advance tax instalments; board meetings — a private company must hold at least four a year, with no more than 120 days between two.
• Annually: statutory audit; income tax return; annual return and financial statements with the Registrar of Companies; annual general meeting; director KYC; auditor appointment or ratification.
• Event-based: return of allotment within 30 days of issuing shares; charge filings; changes in directors; any foreign investment reporting under FEMA within the prescribed timelines.

The three that catch startups out

Foreign investment reporting after a round closes, share allotment filings within the 30-day window, and TDS on payments to foreign vendors — the last of which quietly accumulates into a large demand with interest. Every one of these is trivial to do on time and painful to fix late.

Most of the cross-border structures we are asked to fix were set up a year too early, usually because an accelerator or a US investor suggested it.

• Have a reason beyond investor preference. Customers requiring a foreign contracting entity, or a genuine operational presence, are reasons. “It will make fundraising easier” usually is not, and the cost is real.
• Place of effective management. If your foreign company is really run from India — decisions taken in India, directors resident in India — it may be treated as an Indian tax resident and taxed on its worldwide income. Board governance has to match the structure on paper.
• Transfer pricing. Once you have two related entities, every rupee moving between them must be at arm's length, documented, and reported. Cost-plus arrangements for an Indian development subsidiary are common but must be benchmarked properly.
• Externalisation is not free. Moving an existing Indian company under a foreign holding company triggers valuation, tax and regulatory consequences. Doing it before you have raised is dramatically cheaper than after.
• Substance matters more each year. Both Singapore and the UAE now expect real economic substance for treaty benefits. A registered office and a nominee director will not carry the structure.

Our honest advice to most Indian founders: stay Indian until a specific, named requirement forces the change. We help portfolio companies model that decision properly rather than default into it.

Diligence rarely kills a good company. What kills momentum is a founder spending six weeks assembling documents that should have existed all along, while the investor's enthusiasm cools.

Keep these current from day one

• A cap table that reconciles to the share register and to filings — not a spreadsheet that reconciles to memory
• Signed founder agreements, IP assignment from every founder, employee and contractor who has touched the code
• Board minutes and shareholder resolutions, properly maintained and signed
• Statutory registers, filings and audit reports, current to the last quarter
• Customer contracts, and the ability to say which revenue is contracted versus pilot
• Employment contracts, offer letters and details of any equity promised

What we look at closely

Revenue quality first — contracted versus one-off, concentration, collection history. Then statutory dues, because unpaid GST or TDS is both a liability and a signal. Then the cap table, because how founders treated the first people around them predicts everything else.

Tell us the problems before we find them. Almost everything disclosed early is survivable.