The devil isn’t in the details. It’s in the definitions.

A founder once told me after signing a term sheet:

It happens more often than you think.

Because term sheets sound friendly—until they’re not.

You’ll hear:

But here’s the truth: what you miss in your term sheet today can define your company’s tomorrow.

Let’s break down what most founders overlook—and how to catch it before you commit.

Step 1: The “Control Without Majority” Trick

You may still own 70% of the company—but lose the right to steer it.

Red flags:

• Investor veto rights on hiring, budgets, or fundraising

• Board seat mandates with majority voting power

• Founder vesting reset clauses

What to ask:

Control is more often given away by clauses than by cap tables.

Step 2: The Liquidation Preference Illusion

“2x non-participating preference” might sound harmless.

Here’s what it means:

• Investor gets 2x their money back first, before you get anything

• If the company exits at ₹20 crore and they invested ₹5 crore—they take ₹10 crore off the top

Add in participating preferences, and they take more—even after their 2x.

Fix it:

• Push for 1x non-participating

• Negotiate removal of double-dip clauses

• Understand what happens in mediocre exits, not just unicorn dreams

You’re not negotiating for success. You’re protecting for any outcome.

Step 3: The Anti-Dilution Clause Time Bomb

Standard anti-dilution is okay. But full ratchet? Dangerous.

In a down round:

• Investors get their price adjusted fully to match the new round

• Your equity gets crushed to make up for the difference

Watch for:

• Full-ratchet anti-dilution

• No cap on future dilution protections

• Lack of carve-outs for ESOP pool increases

Your future investors may invest in you.

But your past paperwork could scare them off.

Step 4: The ESOP Pool Trap

Term sheets often require an ESOP top-up pre-money.

If you don’t negotiate it, the dilution comes from your share—not theirs.

Example:

• Raise ₹10 crore at ₹40 crore pre-money

• Add 10% ESOP pool pre-money

• Your effective valuation drops to ₹36 crore—and your dilution just increased

What to do:

• Push for post-money pool creation

• If pre-money is non-negotiable, adjust valuation accordingly

Protect your ownership quietly—through structure, not struggle.

Step 5: The Exit Clause You Never Read

Some term sheets bury drag-along rights deep inside.

This means:

• If a majority investor wants to sell, you must sell your stake too

• You lose the option to hold out for a better exit or different partner

Ask for:

• Drag-along thresholds (not one investor can trigger it alone)

• Exit veto rights on minimum valuation

• Reasonable notice and consent periods

Your dream exit shouldn't become someone else’s quick liquidation.

TL;DR – Too Long; Didn’t Read

• Term sheets aren’t “non-binding” in spirit—only in enforcement.

• Watch out for veto rights, liquidation preferences, full ratchets, and ESOP pool traps.

• Protect not just valuation—but control, dilution, and future flexibility.

• Get a startup lawyer. Always. Legalese isn’t a founder skillset—it’s a survival tool.

Getting a term sheet isn’t the win.

Signing the right one is.

Because when things go wrong (or even right), your term sheet becomes your rulebook.

And trust me—what’s written will outweigh what was “understood.”