Template Description

The Pre-Seed Funding Term Sheet Template is a professionally structured legal summary document designed to initiate funding discussions between startups and early-stage investors. Aligned with investment best practices and applicable Indian and international corporate laws, this 4-page MS Word document serves as a non-binding agreement outlining proposed terms for a startup’s pre-seed investment round. It helps protect both parties by setting expectations on valuation, rights, shareholding, and investment structure before entering into formal shareholder or subscription agreements.

Understanding the Pre-Seed Funding Term Sheet Template

This non-binding term sheet captures the critical components of an early-stage investment deal, including the type of security (e.g., SAFE/Equity/CCPS), use of funds, founder vesting, exit rights, and board participation. It is commonly used by startups before entering into due diligence or full equity negotiations. The term sheet balances the investor’s protection with founder autonomy while laying a foundation for transparency and alignment during the pre-seed stage.

Key Features of the Template

•       Non-Binding Legal Format: Clearly specifies that the document is non-binding except for exclusivity, confidentiality, and governing law clauses, ensuring flexibility in deal negotiations.

•       Investment Instrument Options: Includes provisions for Compulsorily Convertible Debentures (CCDs), Equity Shares, or SAFE notes, with fields for discount rates, maturity, and valuation caps.

•       Detailed Capitalization Table: Provides a structured post-investment cap table format showing equity distribution among founders, investors, ESOP pool, and others.

•       Founder Vesting & IP Assignment: Establishes full-time commitment clauses, vesting schedules (4 years with a 1-year cliff), and clear assignment of intellectual property created by founders.

•       Use of Funds Reporting: Breaks down typical fund usage categories, product development, hiring, and marketing and requires the startup to submit a 12–18 month financial plan post-funding.

•       Liquidation Preference Clause: Offers investors a 1x non-participating preference in case of liquidation or exit, ensuring return of their principal investment before other equity holders.

•       Anti-Dilution Protection: Optional provision for broad-based weighted average protection in down rounds, maintaining investor equity integrity in future financing rounds.

•       Information & Inspection Rights: Mandates regular financial updates, including MIS reports, cap tables, unaudited quarterly and audited annual statements.

•       Board Representation & Reserved Matters: Grants rights to appoint a board observer and includes a list of business decisions that require prior investor approval.

•       Exit Mechanisms: Provides standard exit right,s including tag-along, drag-along, right of first refusal (ROFR), and secondary sale participation.

•       Exclusivity & Confidentiality: Enforces exclusive negotiation periods and strong confidentiality protections to avoid parallel fundraising or term disclosure.

Conclusion

The Pre-Seed Funding Term Sheet Template is a practical and comprehensive instrument that facilitates structured, transparent, and informed funding conversations. It lays the groundwork for future binding investment agreements while protecting the interests of both founders and investors during the earliest stages of company formation and capital raising. With well-defined clauses on equity, rights, vesting, and governance, this template is an essential tool in any startup’s fundraising toolkit.