Lawsikho Blog

Continue your seed funding legal journey with expert guidance on navigating term sheets. This second installment examines how to balance founder interests with investor expectations while avoiding common negotiation pitfalls in early-stage financing.

Introduction

“So we will invest 1 crore for 15% equity. Do we have a deal?“

The investor’s question hung in the air as Rahul and Priya (founders) exchanged nervous glances across the conference table. 

After months of preparation and multiple pitches, FoodSwift had finally received its first term sheet. The founders looked at me expectantly, clearly overwhelmed by the document that had arrived in their inbox that morning.

“It’ is just the starting point for negotiations,” I reassured them. “But we need to understand what we are looking at before we respond.“

If you have been following along with our previous article, Seed funding legal prep: What lawyers need to know when working with startups, you will remember how we helped FoodSwift clean up its legal foundation in preparation for seed funding. 

All that hard work paid off—they secured investor interest. But now came the moment of truth: the term sheet.

Startups usually raise money in stages: Seed (early growth capital), Series A (scaling capital), and so on. A term sheet at the seed stage is the first formal handshake between founders and investors. 

While it is non-binding (mostly), it sets the tone for your client’s entire fundraising journey.

I have noticed a common misconception among young lawyers entering the startup space. They believe their job is to challenge every investor-favorable term and turn the negotiation into a battlefield. This approach might work at Series B or C, but at the seed stage? It’s the fastest way to kill a deal for your clients.

That is exactly what I reminded myself of when FoodSwift received its first-ever term sheet. They were excited but clueless about terms like ‘liquidation preference‘ or ‘vesting.’ 

My role as their legal advisor was not to be the toughest negotiator in the room. But was to be the voice of clarity and perspective when everyone else was caught up in the excitement or anxiety of the moment.

Having said that, in this article, I will walk you through the essentials of seed-stage term sheets, showing you how I protected FoodSwift’s founders without overcomplicating things.

I am going to cover 

• What these documents typically include, 
• Which terms matter most, and 
• How I reviewed them efficiently. 

I will share real examples from my experience with startups like FoodSwift, including both victories and painful lessons.

Because the truth is, law school does not prepare us for the real things that happen during the deal-making process. Always remember that at the seed stage, perfect is often the enemy of good. 

My job was not to craft the perfect term sheet, but to help Rahul and Priya get the capital they needed with terms they could live with.

So, keeping this in mind. Let us get started.

Indian legal context for seed funding

When advising on seed-stage term sheets in India, it is essential to contextualize your advice within the relevant legal framework. Key considerations include:

• Companies Act, 2013 compliance: Equity investments must comply with share issuance regulations, including proper board and shareholder approvals, filing with the Registrar of Companies, and adherence to pricing guidelines.
• FEMA regulations for foreign investments: If your startup is accepting foreign investment, compliance with the Foreign Exchange Management Act (FEMA) regulations is mandatory, requiring a valuation report from a chartered accountant or merchant banker.
• Instrument selection implications: While SAFEs and convertible notes have gained popularity, they face regulatory scrutiny in India. Convertible notes are explicitly permitted for recognized startups under the Startup India initiative, but may have tax implications as debt instruments until conversion.
• Tax considerations: Different investment structures carry varying tax implications for both investors and the company. For example, equity investments may trigger angel tax provisions unless specific exemptions apply.

It is prudent to consult with a chartered accountant familiar with startup investments to ensure compliance with evolving regulations. For FoodSwift, we verified their recognized startup status under DPIIT to qualify for available exemptions before proceeding with the term sheet negotiations.

What does a seed-stage term sheet typically cover?

When you receive your first term sheet as a startup lawyer, the document might appear deceptively complex. Despite often being just a few pages long, seed-stage term sheets contain critical provisions that will shape your client’s company for years to come. 

Your job is to translate these provisions from investor jargon into practical implications for founders.

Let me walk you through the key terms you will typically encounter in seed-stage term sheets and how to explain them clearly to your startup clients. 

I understand that these terms can feel overwhelming if you are encountering them for the first time. 

To make it easier, I have created a simplified table below.

Term Sheet terminology simplified

Term	What it means	Simple explanation	Why it matters
Investment Structure	The legal form of investment	How money goes in (equity, SAFE, convertible note)	Affects valuation timing and complexity
Pre-Money Valuation	Company value before investment	What the company is worth today	Determines how much ownership founders give up
Post-Money Valuation	Company value after investment	Company worth plus new money	Total value investors see in the business
Liquidation Preference	Who gets paid first in an exit	Investor’s exit priority pass	Affects founder returns in less-than-stellar exits
Participating vs. Non-Participating	How proceeds are distributed	Whether investors “double-dip”	Can dramatically impact founder returns
Founder Vesting	Earning equity over time	Commitment schedule for founders	Ensures founders stick around
Pro-Rata Rights	Rights to invest in future rounds	Investor’s “save my seat” option	Affects the cap table in future rounds
Board Structure	Who gets decision-making power	The company’s governance model	Determines who controls major decisions
Option Pool	Shares reserved for employees	Future employee ownership fund	Dilutes current shareholders, usually founders
Exclusivity/No-Shop	Can’t seek other investors	Dating exclusively clause	Limit founder options during negotiation

1. Investment structure: Equity, SAFE, or convertible note?

The first thing you will need to identify is how the investment will be structured. Seed investments typically come in three forms:

• Equity: The most straightforward approach is where investors provide capital in exchange for immediate ownership (shares) in the company. This requires setting a valuation right away.
• SAFE (Simple Agreement for Future Equity): SAFE (Simple Agreement for Future Equity): Popularized by Y Combinator, these are agreements that promise investors equity in the future, usually at the next priced round. They delay the valuation conversation and typically include a valuation cap to set an upper limit on the price at which the investment converts to equity, though some SAFEs rely solely on a discount rate or include a most-favored-nation clause that affects conversion terms.
• Convertible note: Essentially a loan that converts to equity at the next funding round, usually with a discount on the share price to reward early investment risk.

When advising founders, I find it helpful to use analogies they can grasp quickly. 

Equity is like buying a house fully — you own it from day one. A SAFE is like paying a deposit now, but the full price will be decided later. A convertible note is like a rent-to-own deal — you move in early and later get ownership, often with some extra perks for committing early.

For FoodSwift, we received a straightforward equity deal offering ₹1 crore for 15% ownership. This meant immediately diving into valuation discussions.

2. Valuation or Cap: The foundation of the deal

Valuation is often the most discussed term, and for good reason—it directly determines how much of their company founders are selling.

A seed-stage term sheet will typically specify:

Pre-money valuation: What investors believe the company is worth before their investment.

Post-money valuation: Pre-money plus the investment amount, representing the company’s value immediately after investment.

Cap table impact: How ownership percentages will change after the investment.

Think of valuation like pricing a house—it’s based on future potential, not just today’s worth. When explaining this to founders, show them the mathematical relationship between these numbers:

• Pre-money valuation: ₹6.67 crore
• Investment amount: ₹1 crore
• Post-money valuation: ₹7.67 crore
• Investor ownership: 13.04% (₹1 crore ÷ ₹7.67 crore)

Watch for discrepancies between the stated ownership percentage and the mathematical calculation. 

In FoodSwift’s case, the investors claimed 15% ownership when the math suggested 13.04%. This difference often comes from including an option pool in the pre-money valuation, effectively diluting only existing shareholders, not new investors.

3. Investment amount: total money coming in

This straightforward term specifies how much capital the investors are committing. However, do not stop at explaining the number. Help founders understand:

• How many months of runway does this provide based on their burn rate
• Whether this capital is sufficient to reach their next milestone
• If the investment will be tranched (released in stages upon meeting specified milestones)

For early-stage startups, translating investment into time is crucial. A ₹1 crore investment might mean eight months of runway for one startup but only four for another with higher expenses.

4. Price per share

For equity deals, the term sheet will specify a price per share. 

This is mostly a mathematical outcome of dividing the pre-money valuation by the number of outstanding shares, but it is worth verifying for consistency.

Price per Share = Pre-Money Valuation ÷ Total Outstanding Shares”

For example, if the pre-money valuation is ₹6.67 crore and there are 1,00,000 outstanding shares, the price per share is ₹6,67,00,000 ÷ 1,00,000 = ₹6,670 per share. 

Always cross-check this figure against your client’s cap table to ensure the number of outstanding shares is accurate.

5. Liquidation preference: the exit priority pass

This might be the most important term to explain clearly after valuation. Liquidation preference determines who gets paid first when the company is sold or liquidated.

A liquidation preference is typically expressed as a multiple of the original investment (1x, 1.5x, 2x) and can be:

Non-participating: Investors either take their preference amount OR convert to common shares and participate pro rata in the proceeds, whichever is greater.

Participating: Investors get their preference amount PLUS participate pro-rata in the remaining proceeds (sometimes called “double-dipping”).

Imagine priority boarding on a flight—liquidation preference means investors board the ‘exit plane’ before founders. For seed-stage companies, a 1x non-participating preference is standard and reasonable. Anything beyond this (like 2x or participating) should raise red flags and warrant pushback.

A quick example illuminates this concept:

• Company sells for ₹3 crore
• With 1x preference: Investor gets ₹1 crore first, remaining ₹2 crore split according to ownership percentages
• Without preference: Everything split by ownership percentages from the start

Key considerations to watch for:

• Event triggers: Liquidation preferences typically apply to liquidation events like a sale or dissolution, but check if the term sheet extends them to other scenarios, such as recapitalizations or dividend distributions.
• Priority among investors: For startups with multiple investors, ensure preferences are pari-passu (equal priority) rather than senior/junior to avoid favoring one investor over others.
• Caps on participating preferences: For participating preferences, negotiate a cap (e.g., 3x the investment amount) to limit double-dipping. For example, if an investor has a 1x participating preference with a 3x cap, they receive their investment back plus up to 3x that amount from remaining proceeds, after which they no longer participate.

6. Founder vesting: insurance for investors and co-founders

Many seed-stage term sheets include provisions requiring founders to subject their existing equity to vesting schedules—typically four years with a one-year cliff.

When explaining this to founders, emphasize that vesting protects all parties involved:

• It ensures founders remain committed to the company
• It protects co-founders from each other, potentially leaving early
• It creates alignment between founders and investors

The standard is a four-year vesting period with a one-year cliff, meaning 25% vests after one year, with the remainder vesting monthly over the following three years.

For founders who have already been working on their startup for some time, negotiate for ‘vesting credit’ for time already served. Vesting credit recognizes the founders’ prior contributions, typically by:

• Reducing the cliff period (e.g., crediting 6 months toward a 1-year cliff)
• Accelerating the vesting schedule (e.g., 25% vested upfront for 1 year of prior work)
• Applying credit to monthly vesting after the cliff

Document this explicitly in the term sheet by specifying the credited time and its impact on the vesting schedule. 

For FoodSwift, we negotiated 6 months of vesting credit, reducing the 1-year cliff to 6 months, so 25% of their equity vested after an additional 6 months from closing the investment.

7. Basic investor rights: information and participation

Seed term sheets typically include various rights for investors. They are as follows

• Information rights: Access to financial statements, typically quarterly unaudited and annual audited reports.
• Inspection rights: The ability to examine books and records with reasonable notice.
• Pro-rata rights: The right to maintain their ownership percentage in future funding rounds by participating in those rounds.
• Tag-along rights: The right to join if the founders sell their shares.

These provisions rarely warrant significant pushback at the seed stage. 

They are considered standard investor protections, and maintaining a cooperative relationship with investors is valuable. 

However, examine any unusual rights or frequencies (like monthly reporting requirements) that might create administrative burdens for your early-stage clients.

8. Board structure: governance considerations

Seed term sheets often propose changes to the company’s board structure. Typically, this means adding a board seat for the lead investor or granting them observer rights (attendance without voting power).

For seed-stage companies with just founders on the board, expanding to include one investor representative is standard. However, this arrangement carries important legal implications:

• Board members’ fiduciary duties: Investor board members owe fiduciary duties to the company and all shareholders, which may sometimes conflict with their investor interests. These duties should be clarified in the shareholders’ agreement.
• Observer rights and confidentiality: Observer rights typically grant access to board materials and discussions without voting power. Ensure confidentiality agreements protect sensitive information, as observers are not bound by the same fiduciary duties as directors.
• Information access limitations: Consider negotiating limitations on observer access to competitively sensitive data or discussions involving conflicts of interest.

A balanced initial structure might include 

• two founder seats and 
• one investor seat 

This maintains founder control while giving investors appropriate oversight. If investors push for equal representation or control, that is unusual at the seed stage and worth pushing back on.

Non-binding vs binding provisions

When I slid FoodSwift’s term sheet across the table at the first review meeting, Rahul skimmed through it again and asked, “So this is not legally binding, right? We can still talk to other investors?“

This common misconception about term sheets requires immediate clarification. 

While it’s true that most provisions in a term sheet are non-binding indications of terms rather than legally enforceable obligations, certain sections are very much binding and can create immediate legal obligations.

Understanding the distinction is crucial for advising your startup clients effectively.

The non-binding parts

The majority of a term sheet’s content falls into the non-binding category. These are the economic and control terms that will eventually be formalized in definitive agreements if the deal progresses. These non-binding terms are:

• Investment amount and valuation
• Equity allocation and share price
• Liquidation preferences
• Board composition
• Investor rights (information, pro-rata, etc.)
• Future financing provisions
• Exit and liquidity provisions

These terms represent the investor’s intention but do not create enforceable rights until incorporated into final documents like a Share Subscription Agreement or Shareholders’ Agreement.

For FoodSwift, I explained that while their investors had proposed a ₹6.67 crore pre-money valuation, this figure could still be negotiated. Similarly, the proposed board structure with one investor seat was not yet set in stone. These were important starting points but not legally binding commitments.

The binding provisions that matter

The truly binding provisions in a term sheet typically include:

• Confidentiality: Once signed, most term sheets legally prevent both parties from disclosing the terms or even the existence of the discussions. For FoodSwift, this meant they could not use the term sheet to shop for better deals by showing it to other potential investors.
• Exclusivity (No-Shop): Perhaps the most significant binding provision, this prohibits founders from soliciting or entertaining other investment offers for a specified period (typically 30-60 days). This gives the investor time to conduct due diligence without competition.
• Expense reimbursement: Many term sheets require the company to reimburse the investor’s legal and due diligence expenses if the deal closes (and sometimes even if it does not).
• Governing law and dispute resolution provisions: Determining which jurisdiction’s laws apply

These binding provisions kick in immediately upon signing the term sheet and create real legal obligations and potential liability.

Navigating confidentiality constraints

Binding confidentiality provisions in term sheets can create practical challenges when founders need to discuss the potential investment with advisors or other stakeholders. FoodSwift’s term sheet included standard confidentiality language prohibiting disclosure of terms to third parties.

I advised Rahul and Priya to request a carve-out allowing them to share the term sheet with:

• Their board of directors
• Key employees who needed to know
• Professional advisors (accountants, etc.)
• Existing investors who had information rights

The investors agreed to this reasonable modification, giving FoodSwift the flexibility to seek advice while respecting the confidential nature of the negotiations.

The exclusivity trap

When reviewing FoodSwift’s term sheet, I immediately flagged the exclusivity clause:

“Company agrees to work exclusively with Investor for a period of 60 days and shall not solicit or accept any other offers of financing during this period.“

“This provision is legally binding,” I emphasized to Rahul and Priya. “From the moment you sign, you’re locked into exclusive negotiations with this investor for two months. You will need to pause discussions with any other potential investors.“

The implications were significant. 

FoodSwift had been in early discussions with two other angel investors. Signing this term sheet would mean putting those conversations on ice, potentially losing them altogether if this deal fell through.

Exclusivity periods in the Indian startup ecosystem often range from 30 to 60 days, depending on the deal’s complexity and investor expectations. Negotiate shorter periods (e.g., 30-45 days) when the startup has limited runway or multiple investor options.

The 60-day period in FoodSwift’s term sheet was on the longer side, creating heightened risk if the deal did not close. We negotiated this down to 45 days, with a clause allowing the company to terminate exclusivity if the investor did not provide a draft of definitive agreements within 30 days.

Cost provisions that surprise founders

Many founders overlook the cost reimbursement provisions until they receive an invoice. One binding clause in FoodSwift’s term sheet stated:

“Company shall reimburse Investor for all reasonable legal and due diligence expenses incurred in connection with the investment, up to a maximum of ₹5 lakhs, upon the earlier of (i) closing of the investment or (ii) Company’s decision not to proceed after signing this term sheet.“

I explained to Rahul and Priya that this meant they could be on the hook for significant expenses even if they decided the deal was not right for them after signing. Cost reimbursement clauses in Indian seed-stage deals typically range from ₹1-5 lakhs, depending on the deal size and complexity. 

For FoodSwift’s ₹1 crore investment, the initial ₹5 lakh cap was on the higher side, so we negotiated a revision so that expenses would only be reimbursable upon successful closing, capped at ₹3 lakhs, and with prior approval required for any single expense over ₹50,000.

How to handle the binding provisions

When reviewing seed-stage term sheets, pay special attention to these binding provisions and address them proactively:

1. Assess exclusivity periods carefully: Consider your client’s fundraising pipeline and cash position. If they have active conversations with multiple investors, a shorter exclusivity period (or none at all) preserves optionality.
2. Cap expense reimbursements: Always try to include a reasonable cap on legal and due diligence expenses, and consider whether they should be payable only on closing or in all circumstances.
3. Clarify confidentiality boundaries: Ensure your clients can discuss the potential investment with necessary parties like team members, advisors, and existing investors.
4. Include escape hatches: Where possible, add conditions that allow termination of exclusivity if the process drags on or specific milestones are not met.

Most importantly, explain these binding provisions to founders before they sign anything. 

For FoodSwift, reviewing these elements early in our term sheet discussion allowed them to make an informed decision about when to sign and how it would impact their fundraising timeline.

The non-binding nature of most term sheet provisions does not diminish their importance—they still establish the framework for the final deal—but the legally binding elements demand immediate and careful attention to protect your client’s interests from day one.

How to review and comment on a seed term sheet

With a clear understanding of what is in a term sheet and which provisions are binding, the next critical question is: how do you actually approach reviewing one? 

When FoodSwift’s term sheet landed in my inbox, I did not immediately dive into redlining. Instead, I followed a systematic approach that has served me well across dozens of seed-stage investments.

The review process is where your value as a lawyer really shines. You are not just spotting legal issues—you are helping founders make informed business decisions about terms that will shape their company’s future. 

Here is a step-by-step approach that ensures you catch what matters while keeping the deal moving forward.

Step 1: Understand the founder’s goals

Before opening the term sheet, I scheduled a 30-minute call with Rahul and Priya to understand their priorities. This conversation is crucial but often skipped by inexperienced lawyers eager to jump into technical analysis.

“What matters most to you in this round?” I asked. 

Their answers revealed that speed was their primary concern—they had less than three months of runway remaining. 

Valuation was important, but secondary to closing quickly. They were also concerned about maintaining decision-making control as first-time founders.

Different founders have different priorities:

• Some prioritize valuation above all else
• Others care most about operational control and board composition
• Some focus on maintaining flexibility for future rounds
• Many first-time founders simply want to close quickly and get back to building

Understanding these priorities shapes how you review the term sheet. For FoodSwift, knowing that speed mattered most meant focusing only on truly problematic terms rather than trying to optimize every clause.

Step 2: Read the term sheet carefully—do not skim

It sounds obvious, but thoroughly reading the term sheet from start to finish is essential. Many lawyers skim through familiar-looking documents, missing subtle variations that could significantly impact their clients.

When reviewing FoodSwift’s term sheet, I noticed an easily missed clause buried in the boilerplate: a requirement for founders to personally guarantee certain company representations. 

This unusual provision would have created personal liability for Rahul and Priya—something completely inappropriate at the seed stage that we promptly negotiated out.

Take notes during your first read-through, marking terms that:

• Seem unusual for the stage
• Conflict with the founder’s stated priorities
• Could create problems for future funding rounds
• Appear ambiguous or poorly defined

For FoodSwift’s term sheet, I created a simple three-column table: 

• Green for standard/acceptable terms, 
• Yellow for terms that warranted discussion but were not dealbreakers, and 
• Red for problematic provisions requiring pushback. 

This visual approach helped the founders quickly understand what mattered most.

Step 3: Spot commercial red flags

While legal issues are your primary focus, good startup lawyers also identify commercial terms that could harm their clients’ interests. These are not necessarily “legal” problems but can significantly impact business outcomes.

In FoodSwift’s term sheet, commercial red flags included:

• A pre-money valuation that included a large employee option pool, effectively reducing the founders’ ownership more than the headline numbers suggested
• A provision allowing investors to block even small amounts of debt financing
• Excessive information rights requiring monthly financial statements with reconciliations that would burden the small team

I have found that founders particularly value lawyers who can spot these business implications rather than focusing solely on legal technicalities. 

For FoodSwift, highlighting how the option pool arrangement effectively lowered their valuation helped them understand a subtle negotiation tactic they had not recognised.

Step 4: Identify legal risks hidden inside binding clauses

As we discussed in the previous section, certain provisions in a term sheet are legally binding upon signature. These deserve special scrutiny during your review.

For FoodSwift, I immediately flagged the exclusivity period (60 days, longer than the typical 30-45 days) and expense reimbursement clause (uncapped and payable regardless of closing). These binding terms created immediate legal obligations that could impact their fundraising flexibility and cash position.

Other legal risks to watch for include:

• Confidentiality provisions that prevent necessary disclosures
• Break-up fees if the company decides not to proceed
• “No-shop” provisions without clear expiration mechanisms
• Agreements to include specific terms in definitive documents

Explaining these binding elements early helps founders understand what they are committing to when they sign. 

For FoodSwift, we negotiated modifications to these binding provisions before signing, reducing the exclusivity period to 45 days and ensuring expenses would only be reimbursable upon closing.

Step 5: Prioritise—Focus on the top 2-3 issues only

The biggest mistake I see junior lawyers make when reviewing seed-stage term sheets is treating every suboptimal term as a battle worth fighting. This approach frustrates investors and can threaten the entire deal.

After identifying all potential issues in FoodSwift’s term sheet, I prioritised just three for negotiation:

1. The excessively long exclusivity period (reduced from 60 to 45 days)
2. The founder vesting provision (negotiated credit for time already spent building)
3. The personal guarantee provision (removed entirely)

We accepted other less-than-ideal terms, including some reporting requirements that were a bit onerous, because they were not worth endangering the deal when cash runway was tight.

This focused approach preserved negotiating capital for what truly mattered. 

I have seen other lawyers send back term sheets with 15+ comments, only to have investors walk away from deals with early-stage companies that lack leverage.

When prioritising issues, consider:

• Which terms could fundamentally harm the company’s future?
• Which terms deviate significantly from market standards?
• Which terms conflict with the founders’ core priorities?
• Which terms would create problems for future fundraising?

For FoodSwift, we accepted a slightly lower valuation than they had hoped for, recognising that the difference was not worth jeopardising the deal given their runway constraints.

Term sheet review checklist

Below is a simplified version of the checklist you can use when reviewing seed-stage term sheets:

Deal Economics

□ Is the valuation within the market range for the company’s stage and sector?

□ Does the cap table math align with stated ownership percentages?

□ Is the option pool size reasonable for planned hires (typically 10-15%)?

□ Is the price per share calculated correctly?

Investor Rights

□ Is the liquidation preference 1x non-participating (standard) or more aggressive?

□ Are information rights reasonable (quarterly vs. monthly reporting)?

□ Is the anti-dilution protection broad-based weighted average (preferable) or full ratchet?

□ Are veto rights limited to major decisions or overly restrictive?

Founder Protections

□ Is founder vesting reasonable with credit for time served?

□ Are acceleration provisions included for termination without cause?

□ Is the exclusivity period aligned with the company’s runway (30-45 days ideal)?

□ Are expense reimbursements capped and payable only on closing?

Future Funding Impacts

□ Could any term create obstacles for future rounds?

□ Are pro-rata rights balanced with capacity for new investors?

□ Does the board structure allow for expansion in future rounds?

India-Specific Compliance

□ Is the structure compliant with the Companies Act, 2013 requirements?

□ If foreign investment is involved, are FEMA regulations addressed?

□ Does the company qualify for startup exemptions from applicable regulations?

This checklist has helped us ensure that no critical issue is overlooked during the often rushed term sheet review process.

Common mistakes junior lawyers make when reviewing term sheets

Through my years advising seed-stage startups, I have observed several recurring mistakes that new lawyers make when reviewing term sheets—mistakes that can damage their client relationships and deal prospects:

1. Missing hidden binding clauses 

Many junior lawyers focus exclusively on economic terms like valuation and miss binding provisions buried in standard-looking paragraphs. I once had a client come to me after signing a term sheet their previous lawyer had reviewed, only to discover they were locked into a 120-day exclusivity period—far longer than the market standard.

2. Over-focusing on minor rights 

I have seen lawyers spend significant negotiating capital on relatively inconsequential matters like information rights while accepting problematic liquidation preferences or control provisions. For FoodSwift, we let some minor information rights issues go to focus on more impactful terms.

3. Pushing too hard on valuation

While valuation matters, seed-stage companies rarely have the leverage to significantly move this needle. Fixating on valuation adjustments can derail deals entirely. I advised FoodSwift that the proposed valuation, while not ideal, was within market range and not worth potentially losing the deal over.

4. Failing to consider future implications

Some terms that seem acceptable at the seed stage can create significant problems in future rounds. A junior lawyer might focus only on immediate impacts without considering how a term might affect a Series A. For example, broad investor veto rights over corporate actions might seem innocuous early on, but can create governance nightmares as a company grows.

5. Using series A/B playbooks at the seed stage

The approach that works for later-stage companies with more leverage rarely translates to seed deals. I have seen lawyers kill seed deals by attempting to negotiate as aggressively as they would for more established clients.

Always ask yourself—does this term really harm the founder? 

If not, move fast. 

Your job is to protect your clients while helping them secure the capital they need to grow, not to “win” every possible point in the negotiation.

For FoodSwift, our focused approach to term sheet review resulted in meaningful improvements to the most important provisions while maintaining the investor’s enthusiasm for the deal. 

They closed their round within 45 days of signing the term sheet, securing the capital they needed to extend their runway and accelerate growth.

Conclusion

Fundraising at the seed stage is about balancing founders’ protection and deal speed. 

Like I mentioned multiple times in the article, your job is not to create perfect documents or “win” every negotiation point, but to simplify the legal process for your client without slowing down the deal.

When advising on term sheets, focus on what truly matters, i.e., 

• liquidation preferences, 
• vesting provisions, and 
• control rights that could impact your client’s future. 

Accept standard investor protections when they do not hinder growth. This balanced approach helped FoodSwift close its round within 45 days, securing the runway they needed to scale.

I am attaching a practical Term Sheet Review Checklist and FoodSwift’s final Term Sheet as reference tools for your next seed transaction.

Mastering seed-stage term sheets is about becoming a trusted advisor to founders. If you can guide them through these early rounds, you will grow with them into Series A and beyond.

In my next article, I will teach how to draft a shareholders’ agreement based on the term sheets. 

Stay tuned as we continue FoodSwift’s funding journey!