Free tool: Equity dilution calculator — See founder dilution, price per share and the option-pool shuffle for your next round.
Economics
- Valuation: what matters is your fully diluted ownership after the round, not the headline pre-money number.
- ESOP pool: if the pool is created or topped up before the round, it dilutes only existing shareholders — the “option pool shuffle”. Typical pools are around 10–15% at seed and 12–18% at Series A.
- Liquidation preference: the Indian market standard is 1x non-participating — investors get their money back or convert, whichever is higher. “Participating” means money back and a pro-rata share of the rest — much more expensive for founders.
- Anti-dilution: broad-based weighted average is standard; full ratchet is aggressive.
- Instrument: usually CCPS — see instruments Indian law allows.
Control
- Board: a common founder-friendly shape after Series A is two founder directors, one investor director and one independent.
- Affirmative voting rights (reserved matters): standard for major corporate actions — new share issues, changes to the charter, sale of the company. Push back if the list reaches into day-to-day operations.
- Drag-along: negotiate a supermajority trigger and a minimum price.
- Tag-along, ROFR and ROFO: standard transfer rights that govern how shares can be sold.
Founder terms
- Vesting: 3–4 years with a one-year cliff is common, often with credit for time already served.
- Non-compete and exclusivity obligations on founders — check scope and duration.
Process terms
- No-shop: typically 30–45 days.
- Conditions precedent: diligence, approvals and any compliance clean-up — fix issues like missing FC-GPR filings early.
- Most terms are non-binding; confidentiality, exclusivity and costs usually are binding.
Model before you sign
Run the cap table through the round and a few exit scenarios — at low, expected and high outcomes — so you can see what the preference, pool and anti-dilution terms actually cost you. That’s part of our fundraising advisory work.
Frequently asked questions
What is a standard liquidation preference in India?
1x non-participating is the Indian market standard: investors get the higher of their money back or what they'd receive on conversion.
What is the option pool shuffle?
When the ESOP pool is created or expanded before the round, it dilutes only existing shareholders, effectively lowering the real pre-money valuation.
Is a term sheet legally binding?
Mostly not; the commercial terms are usually non-binding, while confidentiality, exclusivity (no-shop) and cost provisions are typically binding.
Please note: this guide is general information based on the rules as they stood on the review date above. Regulations and RBI/CBDT procedures change often — please get advice on your specific facts before acting.