AS | Ankit Sarawagi|Founder, CFOmatrix·June 2026·11 min read | Updated Jun 2026 |
- A term sheet is mostly non-binding: the valuation, round size, and economic terms are an agreement to keep negotiating, not a contract.
- A few clauses are binding from day one, usually exclusivity (no-shop), confidentiality, costs, and governing law. Always find and read the “binding terms” clause first.
- The no-shop / exclusivity clause locks you out of talking to other investors. Keep it short (30 to 45 days) and make it expire automatically.
- Confidentiality usually survives even if the deal dies, so a leaked valuation or an early announcement can be a real breach.
- The term sheet feeds the SSA (the binding share-purchase contract) and the SHA (the long-term governance contract). The money only moves at closing.
| ~90% Of a typical term sheet is non-binding: the commercial terms are an intent to negotiate, not a contract | 30 to 45 days A reasonable exclusivity period for an early-stage Indian round; treat anything beyond 60 days as a red flag | ₹20 crore The Series A cheque in our example: a number the term sheet promises but the SSA actually moves |
We use the same cap table across this cluster. The company has just signed a Series A term sheet that sets a post-money valuation of ₹100 crore for a ₹20 crore cheque. Founders and the ESOP pool hold equity shares; the two investors hold preference shares (in India, usually CCPS). The term sheet describes this round; the SSA and SHA are what make it real.
| Shareholder | Holding | Share Type | Capital Invested |
|---|---|---|---|
| Founder A (CEO) | 30% | Equity Shares | Nil |
| Founder B (CTO) | 22% | Equity Shares | Nil |
| Founder C (COO) | 8% | Equity Shares | Nil |
| Angels & ESOP pool | 5% | Equity Shares | Nil |
| Seed Investor | 15% | Preference (CCPS) | ₹6 crore |
| Series A Investor (lead) | 20% | Preference (CCPS) | ₹20 crore |
What a Term Sheet Actually Is
Plain definition: A term sheet is a short document (often two to six pages) that sets out the main terms on which an investor proposes to invest in your company: how much they put in, at what valuation, what kind of shares they get, what rights come with those shares, and what has to happen before the money moves. It is the headline of the deal, not the deal itself.
Why it exists, and whose interest it serves: The term sheet exists so both sides can agree the commercials before spending lakhs on lawyers drafting the full agreements. It mostly protects the investor: it pins you to a set of terms and, through the binding clauses, stops you from shopping their offer around or leaking it while they do due diligence. For the founder, its value is clarity. It is the one moment where the whole deal is small enough to read in ten minutes, so this is when you negotiate, not later.
In our example, the Series A Investor hands over a term sheet: ₹20 crore for 20% on a ₹100 crore post-money valuation, in the form of CCPS, with a 1x liquidation preference, one board seat, and a 30-day exclusivity period. Every one of those numbers is up for negotiation right now. Most of them will become non-binding intentions; a couple will bind you the instant you sign.
You will see the same idea called a “term sheet,” a “letter of intent” (LOI), or a “memorandum of understanding” (MOU). The label does not decide what binds you: the wording inside does. A document titled “non-binding term sheet” can still contain a fully binding exclusivity clause. Read the clauses, not the cover page.
Binding vs Non-Binding: the Split That Matters Most
Plain definition: A non-binding clause is a statement of intent. If the deal falls through, neither side can sue to enforce it. A binding clause is a real contractual obligation that you must honour, whether or not the investment ever closes. A good term sheet states plainly which clauses are which, usually in a “binding terms” or “miscellaneous” paragraph near the end.
Why it’s structured this way: Both sides want freedom to walk if due diligence turns up something bad, so the commercial terms are kept non-binding. But the investor needs some protection for the time and money they are about to spend, so a narrow set of clauses is carved out as binding. The danger for founders is assuming the whole document is “just an intention.” It is not.
| Usually NON-Binding (intent only) | Usually BINDING (from signing) |
|---|---|
| Valuation (pre and post-money) | Exclusivity / no-shop |
| Investment amount & share type (CCPS) | Confidentiality |
| Liquidation preference, anti-dilution | Costs & expenses |
| Board seats & voting rights | Governing law & dispute resolution |
| Conditions to closing, ESOP pool size | The “binding terms” clause itself |
The binding bits are the ones about how you behave during the deal (stay exclusive, stay quiet, pay your own costs, agree the courts). The non-binding bits are the ones about what the deal is (price, shares, rights). Behaviour binds; economics waits for the SSA and SHA.
A term sheet that is silent on what binds. If there is no clear “binding terms” clause, the default position can be argued either way, and an exclusivity or confidentiality obligation may still be enforceable. Insist on an explicit line naming exactly which clauses are binding and stating that the rest is non-binding. Ambiguity here only ever helps the better-resourced party.
No-Shop / Exclusivity: You Stop Talking to Everyone Else
Plain definition: A no-shop (also called exclusivity or “lock-out”) clause stops you from soliciting, negotiating with, or accepting an investment offer from any other investor for a fixed period while the lead investor completes due diligence and drafts the binding agreements. It is one of the few clauses that binds you from the moment you sign.
Why it’s in the agreement: The investor is about to spend real money on lawyers, accountants, and diligence. They do not want to do all that work only to find you have used their term sheet to start a bidding war. No-shop buys them a clear runway to close. That is fair in principle. The problem is always the length and the breadth.
A short, clean exclusivity (what you want)
The term sheet gives the Series A Investor 30 days of exclusivity. During that month you cannot pitch other funds, but the clause expires automatically on day 31 if the deal has not closed. The investor moves fast, completes diligence, and you sign the SSA in week four. The clause did its job and then got out of the way. This is the healthy version.
A long, broad exclusivity (what bites you)
A different term sheet gives the investor 90 days of exclusivity with no automatic expiry and a clause that also bars “discussions” with any party. Two months in, the investor slows down, renegotiates the valuation from ₹100 crore to ₹80 crore, and you have no leverage: you are contractually barred from going to anyone else, and your runway is shrinking. This is “exclusivity creep,” and it is one of the most expensive things a founder can sign without noticing.
Three things in any no-shop. Length: keep it to 30 to 45 days, 60 at most. Auto-expiry: it must lapse on its own when the period ends or when the investor walks, with no need for you to do anything. Carve-outs: you should still be able to respond to genuinely unsolicited approaches, and the clause should die immediately if the investor materially changes the headline terms. Never let an exclusivity clause outlive the investor’s good faith.
Confidentiality: Keep the Terms (and the Diligence) Quiet
Plain definition: A confidentiality clause stops both sides from disclosing the existence and contents of the term sheet, plus any information shared during due diligence, to anyone outside a defined circle (advisors, lawyers, and so on). It is binding, and it usually survives the term sheet, so it keeps applying even if the deal collapses.
Why it’s in the agreement: Both sides are exposed. You are about to open your books, contracts, and metrics to the investor; they are sharing their proposed terms. Neither wants those leaking to competitors, the press, or other investors. For the founder, confidentiality also protects you: it stops the investor from broadcasting your numbers around the market if they decide to pass.
The premature announcement
Excited about the ₹20 crore round, Founder A posts “thrilled to announce our Series A” on LinkedIn before closing. The valuation and investor name are now public, and the term sheet’s confidentiality clause has been breached, even though the money has not landed. Worse, it can spook the investor mid-diligence. A signed term sheet is not a closed round, and confidentiality is exactly the clause that makes early celebration risky.
The leaked term to a competing fund
To create urgency, a founder shows the Series A term sheet to another fund, hoping to trigger a better offer. This breaches both confidentiality and the no-shop at once. The lead investor can walk, and in a small market like Indian venture, word travels. Confidentiality and exclusivity are the two binding clauses that most often catch founders out together.
Check that the clause binds both sides, not just you. The investor is seeing your most sensitive data, so they should be just as restricted from sharing it if they walk away. A one-sided confidentiality clause that only gags the founder is worth pushing back on.
Costs & the Other Binding Bits
Plain definition: The costs (or expenses) clause says who pays the legal and diligence bills, especially if the deal does not close. Alongside it sit the governing law and dispute resolution clauses, which decide which country’s law applies and where any dispute is settled. These are quiet, binding, and easy to skim past.
Why it’s in the agreement: Investors often ask the company to cover their legal costs up to a cap, on the logic that it is the company raising the money. Founders accept this without reading the number, and it can sting.
You pay the investor’s legal bill even if the deal dies
The term sheet says the company will reimburse the investor’s legal costs up to ₹15 lakh, “whether or not the transaction completes.” Diligence drags, the investor walks at ₹80 crore, and you are still on the hook for their ₹15 lakh legal bill, money a pre-revenue startup can ill afford. This clause is binding even though the investment never happened.
Foreign governing law on an India deal
If the Series A Investor is an overseas fund, the term sheet may propose Singapore or English law and offshore arbitration. That is common for cross-border rounds, but it changes your cost and risk if a dispute ever arises. For a purely domestic round it is usually cleaner to keep Indian law and Indian seat of arbitration. Either way, this is binding, so do not let it pass unread.
“Costs payable whether or not the transaction completes,” with no cap or a high one. Negotiate a sensible cap (or make costs payable only on closing), and try to make each side bear its own costs if the investor is the one who walks. A ₹15 lakh bill for a deal that never happened is a real, binding loss.
From Term Sheet to SSA & SHA: Where It Becomes Real
The term sheet is the trailer. The two binding agreements are the film. Everything you negotiated in the term sheet gets translated, in far more detail, into two documents:
- The SSA (Share Subscription Agreement): the binding contract under which the investor actually subscribes to and pays for the shares. It carries the price, the ₹20 crore, the conditions that must be met before closing, and the representations and warranties you give about the company.
- The SHA (Shareholders’ Agreement): the long-term governance contract between all shareholders. It carries the rights the term sheet only summarised, the liquidation preference, anti-dilution, board composition, transfer restrictions, drag and tag, and reserved matters.
| Term Sheet | SSA | SHA | |
|---|---|---|---|
| What it is | Summary of terms | Share purchase contract | Governance contract |
| Binding? | Mostly no (few clauses yes) | Fully binding | Fully binding |
| Carries | Headline terms | Price, conditions, warranties | Rights, control, exits |
| When money moves | Never | At closing | N/A (lives on after) |
Negotiate hard at the term sheet stage, not the SSA stage. Once a term is in the signed term sheet, the SSA and SHA simply convert it into binding language; reopening it later makes you look like you are reneging. The term sheet is short and cheap to argue over. The SSA and SHA are long and expensive. Spend your energy where the leverage is highest: the two pages, not the eighty.
How It All Fires Together: One Round, Start to Finish
The clauses make most sense in the order they actually go off in a real fundraise. Money and obligations flow down this sequence:
1 | Sign the term sheet The commercial terms are agreed but non-binding. Exclusivity, confidentiality, and costs bind you from this moment. |
| ↓ | |
2 | The exclusivity clock starts You stop talking to other investors. The lead runs due diligence on your books, contracts, and metrics, all under confidentiality. |
| ↓ | |
3 | Draft the SSA and SHA Lawyers turn the headline terms into binding contracts. This is where the non-binding economics finally become enforceable. |
| ↓ | |
4 | Closing: the money moves Conditions are met, the SSA and SHA are signed, the ₹20 crore lands, and the CCPS are issued. Only now is the round real. |
A founder who reads only the valuation on page one, and skips the binding clause on the last page, will misread the entire document. The exciting number is the part that is not binding; the quiet clauses at the back are the part that is.
“In a term sheet, the headline number is the part that does not bind you. The small print at the back is the part that does. Founders read it in exactly the wrong order.”
Ankit Sarawagi, CFOmatrixFrequently Asked Questions
Is a term sheet legally binding in India?
Mostly no. The commercial terms (valuation, the size of the round, the liquidation preference, board seats) are usually non-binding and just an agreement to keep negotiating. But a few clauses are explicitly binding, normally exclusivity (no-shop), confidentiality, costs, and the governing law clause. Read the binding clause carefully, because it tells you exactly which lines you are actually signing up to honour.
What is a no-shop or exclusivity clause in a term sheet?
A no-shop (exclusivity) clause stops you from talking to, negotiating with, or accepting an offer from any other investor for a fixed period while the lead investor completes due diligence. It is one of the few binding parts of the term sheet. Keep the period short (30 to 45 days) and make sure it lapses automatically if the investor walks away or misses milestones.
What is the difference between a term sheet and an SSA?
The term sheet is a short, mostly non-binding summary of the deal. The Share Subscription Agreement (SSA) is the long, fully binding contract under which the investor actually buys the shares and the money moves. The term sheet sets the headline terms; the SSA (and the SHA) turn those headlines into enforceable obligations.
How long should an exclusivity period be?
For a typical early-stage Indian round, 30 to 45 days is reasonable, and 60 days is the outer limit for a larger or more complex deal. Anything longer locks you out of the market for too long if the investor stalls. Always tie the period to the investor doing real work and let it expire automatically.
Does signing a term sheet mean I am getting the money?
No. A signed term sheet is a serious signal of intent, but the commercial terms are non-binding and the deal can still fall apart in due diligence or in the SSA and SHA drafting. The money only moves at closing, after the binding agreements are signed and conditions are met. Do not stop running your fundraise on the strength of a term sheet alone.
What is confidentiality in a term sheet, and is it binding?
Confidentiality stops both sides from disclosing the term sheet terms and the information shared during diligence. It is one of the binding clauses and it usually survives even if the deal collapses, so a leaked valuation or a public announcement before closing can breach it. Treat it as a live obligation from the moment you sign.
This is a general explanation for founders, not legal advice. Indian deals involve specific structures (CCPS, FEMA rules on share pricing and resident-to-non-resident transfers, and the way term-sheet rights are later drafted into the SSA, SHA, and Articles of Association). Have your term sheet and the binding agreements reviewed by a lawyer before signing.
- SHA, SSA & Term Sheet Explained: The Complete Guide for Indian Founders Investment Agreements · Pillar
- Liquidation Preference Explained: 1x, Participating vs Non-Participating & Multiples Investment Agreements · SHA Series
- Transfer Restrictions: Drag-Along, Tag-Along, ROFR, ROFO & Lock-In Investment Agreements · SHA Series
AS | Founder, CFOmatrix | Finance Strategy & Equity Compliance CFOmatrix is a knowledge platform focused on how finance actually works inside growing companies. Every insight is shaped by real operating experience across startups and growth-stage companies, including cross-border setups. |