What a term sheet actually commits you to

A term sheet is usually two documents in one. The economics and governance (valuation, liquidation preference, board composition, protective provisions) are generally non-binding: a statement of intent that the definitive agreements will reflect.

Then there are clauses that bind on signature. Typically confidentiality, an exclusivity or no-shop period, and sometimes expenses. These take effect whether or not the round ever closes.

So the practical reading order is backwards: check what binds you first, then negotiate the economics.

A no-shop clause stops you talking to other investors for a defined period, often 30 to 60 days, sometimes longer.

If the round closes, it cost nothing. If the investor walks at day 45 after diligence, you have spent six to eight weeks of runway, lost momentum with everyone you went quiet on, and must restart conversations from a visibly weaker position, because "we were in exclusivity and it fell through" is a question you now answer in every first meeting.

Three things worth negotiating, in order of value:

1. Make it shorter. 30 days is reasonable for a round where diligence is mostly document review, which it is, if your room is ready.
2. Tie it to their progress. Exclusivity lapses if they have not delivered a diligence list by a date, or not issued definitive documents by one.
3. Carve out existing conversations. If you are already in process with someone, say so and exclude them rather than breaching quietly.

Founders optimise valuation. These three frequently matter more:

• Liquidation preference. A 1× non-participating preference is ordinary. Multiples, or participating preference, change outcomes substantially at modest exit values, which is where most exits happen.
• Where the ESOP top-up sits. Inside the pre-money it dilutes existing holders, mostly founders. Post-money it dilutes everyone including the new investor. One clause, materially different outcome. See your ESOP pool in diligence.
• Anti-dilution. Broad-based weighted average is common. Full-ratchet transfers the cost of any future down round onto you entirely.

A lower valuation with clean terms often beats a higher one with a participating 2× preference. Model the actual outcomes at two or three realistic exit values before comparing offers.

• Board composition. Who appoints whom, and what the quorum requires. A quorum that cannot be met without the investor director is a veto by another name.
• Protective provisions. The list of actions needing investor consent. Reasonable for issuing shares or selling the company; check whether it extends to hiring, budgets or ordinary borrowing.
• Information rights. Normal. Note the cadence you are promising. Monthly reporting is a real recurring obligation on a small team.

The term sheet usually lists what must be true before money moves. In Indian rounds these very often include the items on the other pages here: clean statutory registers, IP assigned to the company, filings current, no undisclosed related-party transactions.

Which is the argument for fixing them before you sign anything. A condition you already satisfy is a formality; one you do not is your round waiting on a registry. See reconciling your share register and FEMA and FDI filings.

1. Identify every clause that binds on signature. Read those twice.
2. Model the exit outcomes, not the headline valuation.
3. Check the ESOP top-up placement.
4. Confirm you can meet the closing conditions, or disclose that you cannot.
5. Have your own counsel read it, not the investor’s, and not nobody’s.

A practical summary, not legal advice. Term sheet terms, what binds and their effect depend on the actual drafting and your circumstances; have counsel review your own document.