From term sheet to money in the bank
Getting a term sheet feels like the finish line. It is the point where the real work starts, and the gap between signing and seeing the money is usually six to ten weeks.
Summary
- Most of a term sheet is non-binding intent, but exclusivity, confidentiality and costs usually bind you the day you sign, and the rest gets copied almost word for word into the definitive documents.
- Between signature and money sit diligence, the share subscription and shareholders' agreements, and a list of conditions precedent. Rounds die of delay on that list, usually because nobody owns it.
- Closing starts a compliance clock rather than ending one: allotment within 60 days, PAS-3 within 15 days of allotment, and no use of the money until both are done.
Getting a feels like the finish line. It isn't. It is the point where the real work starts, and where most of the value gets won or lost.
Two things surprise founders at this stage. First, how much the term sheet decides that has nothing to do with valuation. Second, how long the gap is between signing it and seeing the money: usually six to ten weeks, and almost always longer than anyone planned.
This page is about that gap, the process from signature to money in the bank. For what each clause means and where to push back, read the clauses founders should read before signing, which covers them one by one.
A term sheet is mostly not binding. Except where it is.
Most of a term sheet is a statement of intent. Neither side can be forced to go ahead on those terms.
But two or three clauses usually are binding, and they are the ones founders skim:
- Exclusivity (the no-shop). You agree not to talk to other investors for a set period, often 45 to 90 days. If the deal falls apart in week eight, you have burned your other options and your negotiating position. Negotiate the length down, and add a clause that ends exclusivity if the investor walks away or materially changes terms.
- Confidentiality. Usually mutual, usually fine.
- Costs. Sometimes you agree to pay the investor's legal fees. Cap it with a number, not a formula.
Everything else, valuation, board seats, preference, is intent. But intent that gets copied almost word for word into the binding documents later. Fixing something at the term sheet stage takes an email. Fixing it at the definitive agreement stage takes a negotiation you have already lost the ground for.
The clauses that cost you more than valuation
Founders negotiate the valuation hard and everything else barely at all. That is backwards. These are the terms that move your outcome, and every one of them resurfaces during closing:
- Liquidation preference. Who gets paid first on a sale, and how much. Non-participating means the investor takes their money back or converts, whichever is better; participating means both. On a modest exit, participation can leave founders with very little. This is the single most expensive clause in most term sheets.
- Anti-dilution. Protection if you later raise at a lower price. Broad-based weighted average is standard and reasonable. reprices all of the investor's shares to the new price, and most of the cost comes out of founder . Push back on full ratchet.
- The option pool shuffle. If a pool is created or topped up , the falls entirely on existing shareholders, which means you. Post-money, everyone shares it. This one line can be worth more than a few points of valuation.
- Reserved matters. Decisions that need investor consent. New share issues, borrowing above a threshold, selling the company and related-party deals are reasonable. Hiring, budgets and any spend over a small number mean running your company by email approval. Read the list and imagine using it on a busy Tuesday.
- Board composition. How many seats, who appoints them, what makes a valid meeting. If the investor's director must be present for quorum, they can block decisions by not showing up.
- Founder vesting. You already own your shares; this is about the company being able to take some back if you leave early. Check the schedule, whether time already served counts, and what happens on an acquisition.
- Drag-along. If a defined majority wants to sell, everyone must sell. Check the threshold and whether founders are part of it.
We have written up the maths behind preference and anti-dilution with worked numbers. The short version: model your own proceeds at three exit values before you sign. Most founders never have.
What happens after you sign
Here is the part nobody warns you about. Roughly:
Weeks 1 to 4: diligence
Financial, legal and secretarial, often three separate teams sending three separate lists. They will ask for your share register, board minutes, past filings, contracts, IP assignments, records and history. This is why your cap table has to be clean before you start, not during.
Weeks 3 to 6: definitive documents
The term sheet becomes two real contracts: a share subscription agreement, which is the purchase itself, and a shareholders' agreement, which is how you will run the company together. Your Articles get amended to match. Lawyers go back and forth, and anything you left vague in the term sheet gets argued here.
Weeks 5 to 8: conditions precedent
A list of things that must be done before money moves. Typically: board and shareholder approvals, a valuation report from a registered valuer, authorised capital increased if needed, old defaults cleaned up, and sometimes specific fixes the diligence turned up.
This list is where rounds die of delay. Someone has to own it, sequence it, and chase it daily.
Usually nobody does, so each item gets discovered one at a time.
Closing starts the compliance clock
The money arrives. That is where the next set of deadlines begins, not where they end:
- The money sits in a separate bank account and cannot be used until the shares are allotted and the return of allotment has been filed. Section 42 of the Companies Act, 2013 sets both conditions.
- Allot within 60 days of receiving the money. If you cannot, refund it within the next 15 days. Fail to refund and the company owes it back with interest at 12% a year from the end of the 60 days.
- File Form PAS-3 within 15 days of allotment. Until it is filed, the money is still locked.
- Issue the shares properly. Share certificates are due within two months of allotment. Unless you are a small company, your shares now have to be issued in dematerialised form, so in practice this is a credit to each investor's demat account.
- Update the register of members and file the amended Articles.
- If any investor is foreign, the shares must be issued within 60 days of the money arriving under the rules, and Form FC-GPR filed within 30 days of allotment.
- Reconstitute the board, and file DIR-12 within 30 days if a new director joins.
Miss FC-GPR and you are paying a late submission fee and explaining it at your next round.
Why closings slip
In our experience it is almost never the investor. It is one of four things:
- No one owns the conditions precedent list. It sits in a lawyer's email with no tracker and no dates.
- Diligence finds something. A missing IP assignment, an option pool that was never properly approved, unfiled returns from a dormant entity.
- Authorised capital was not increased. A simple form, and two weeks of delay.
- The wrong valuation report. Company law needs a registered valuer's report, and FEMA needs its own fair-value certificate if the investor is foreign. Getting the wrong one means starting over. The income-tax valuation that used to make it three fell away when the Finance (No. 2) Act 2024 withdrew the .
Every one of these is avoidable with two weeks of preparation before you go out to raise.
What to do before you go looking for money
- Reconcile your cap table with your share register and your MCA filings.
- Check that your option pool was properly approved, not just written into a deck.
- Confirm every founder and contractor has signed an IP assignment.
- Clear old filings, open charges and dormant entities.
- Model your own exit proceeds under the preference structure you are likely to be offered.
- Decide who on your side owns the conditions precedent list from day one.
None of this raises your valuation. All of it protects the one you negotiate.
Frequently asked questions
Is a term sheet legally binding in India?
Mostly no. Commercial terms like valuation, preference and board seats are usually stated as non-binding intent. But clauses on exclusivity, confidentiality and costs are normally binding, and they take effect the moment you sign. An exclusivity period commits you to stop talking to other investors, whether or not the deal eventually closes.
How long does it take to close a funding round in India?
Typically six to ten weeks from signing the term sheet, assuming your records are in order. Diligence takes two to four weeks, definitive documents run in parallel, and conditions precedent take another two to four. Rounds slip mainly because nobody owns the conditions list, or because diligence surfaces a records problem that has to be fixed first.
What is the difference between a pre-money and post-money option pool?
A pre-money pool is created before the investment, so the dilution falls entirely on existing shareholders, the founders. A post-money pool is created after, so the new investor shares the dilution too. Investors usually ask for pre-money. The difference can be worth more than several points of valuation, so model it before you agree.
If you want the records, approvals and conditions list in order before a term sheet arrives rather than after, that is what our investor readiness work is for.
Current as at September 2026. General guidance, not legal advice: rules, forms and timelines change, so take advice on your own round.
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About the author
Lead - Company Secretarial, Compliance & Fundraise Advisory
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