Most founders don't lose control at the negotiating table. They lose it months after they've signed.
A deal breaker is not always the clause that makes you walk away. More often it is the one nobody told you was one. CS Manavi Arora on five clauses in Indian funding rounds that quietly cost founders control.
Summary
- Founders rarely lose control in the negotiation itself. They lose it through clauses that looked routine and that nobody flagged in time.
- Five clauses in Indian rounds deserve real scrutiny: the option pool shuffle, redemption rights, reps and warranties, founder non-competes and a one-sided ROFR.
- Most are normal requests. The work is knowing which to accept, which need a cap or a carve-out, and which are worth losing the round over.
Most founders don't lose control of their company at the negotiating table. They lose it quietly, months after they've signed.
A "deal breaker" isn't always the clause that makes you walk away from a round. More often, it's the clause you didn't walk away from, because nobody told you it was one.
Beyond the usual suspects (valuation, board seats, vesting), here are five clauses in Indian funding rounds I treat as genuine deal breakers when they are left unaddressed. None of them is exotic. Each can look routine on the page and cost you a great deal later.
The option pool shuffle
An investor asks you to expand the ESOP pool before the round closes, "for future hires". It sounds routine.
The question is not whether you need a pool. It is whose shares pay for it.
If the pool is created or topped up in the pre-money, it is carved out before the new investor comes in. Every existing shareholder is diluted by it, and the incoming investor is not. The headline valuation stays the same, but the price you are really getting falls, because part of it has gone into a pool you are funding alone.
The fair version is a pool sized post-money, so that it dilutes everyone proportionally, new investor included. Where an investor insists on pre-money, size the pool to the hires your plan actually needs over the next twelve to eighteen months, not to a round number chosen to protect their percentage.
Redemption rights
A redemption clause requires the company to buy back the investor's preference shares by a fixed date, often if there has been no exit by then.
Under Section 55 of the Companies Act, 2013, preference shares can only be redeemed out of profits available for dividend, or out of the proceeds of a fresh issue of shares made for that purpose. A company with neither cannot legally redeem, however clearly the agreement says it must.
So agree to a redemption date without a realistic path to either, and you've signed up for a cash crunch on a calendar you don't control. Because the company often cannot pay, these obligations tend to resurface on the promoters personally, through put options or buyback undertakings. That is where they really bite.
There is a foreign-investment layer too. Under India's foreign exchange rules, preference shares issued to a foreign investor count as only if they are compulsorily convertible; redeemable ones are treated as debt. That is one more reason redemption tends to migrate into promoter-level put rights. Read those as carefully as the redemption clause itself.
Representations and warranties
Reps and warranties are the statements you personally certify as true in the shareholders' or subscription agreement: that the accounts are accurate, that there is no undisclosed litigation, that the company owns its IP, that its filings are up to date.
The risk is the indemnity behind them. Many agreements make founders personally liable, alongside the company, if a warranty turns out to be wrong. Often that liability is uncapped, unlimited in time and uninsured. A statement you gave in good faith about something you did not know can then follow you personally for years.
What to ask for: warranties from the company rather than from you personally wherever possible; a fixed, known cap on any founder liability; a time limit on claims; a threshold below which small claims don't count; and a proper disclosure letter, so that anything you disclosed up front cannot later be claimed as a breach.
Non-compete on founders
Investors sometimes ask founders to sign restrictive covenants that go well beyond what Indian contract law will actually enforce.
Section 27 of the Indian Contract Act, 1872 makes an agreement in restraint of trade void, with a narrow exception for someone who sells the goodwill of a business. Indian courts have generally upheld non-competes that apply while you remain a founder, director or shareholder, and have generally refused to enforce ones that stop you working in your field after you leave.
That does not make a broad non-compete harmless.
An unenforceable clause can still be used as leverage.
It can also sit alongside enforceable terms, such as a bad-leaver trigger, that make breaking it expensive in other ways. Know the difference between a reasonable restriction and one that wouldn't survive a court anyway, before you sign either.
ROFR without tag-along
A right of first refusal gives investors the first right to buy your shares if you ever want to sell. That's fair, if it's mutual.
The problem is a one-sided ROFR with no matching tag-along right. A ROFR restricts when, and to whom, you can sell. A tag-along lets a shareholder join a sale on the same terms when another shareholder sells. If investors hold a ROFR over your shares and are free to sell their own, while you have no tag-along, they can find their own way out and leave you locked in long after they have gone.
What to ask for: a mutual ROFR, or at the very least a tag-along on any investor sale, and a short, clear window for exercising the ROFR so that it cannot be used to stall a sale indefinitely.
Know which ones you can live with
None of these are automatic red flags. Most investors ask for some version of all five, and that's normal. This isn't about refusing to sign. It's about knowing which of these you can live with, which need a cap or a carve-out, and which are genuinely worth losing the round over.
A funding round rarely fails over the money. It fails over a clause nobody flagged in time.
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