Two founders, the same ₹100 Cr valuation. One takes home crores more. The gap was in the clauses.

Two founders raise their Series A at the same ₹100 crore valuation. Same round, same headline number. Years later the company sells — and one takes home crores more than the other.

That gap wasn't in the valuation. It was in the clauses underneath — the ones that never show up as a number. Valuation is the line everyone negotiates. The cost is in the lines they don't. Four of them do most of the damage.

1. Where the option pool comes from

The option pool is equity set aside to hire your team. It has to come out of someone's ownership, and the term sheet decides whose. Carved out "pre-money" — before the new money goes in — and the founders absorb all of it alone. Carved out after, and the new investor shares that dilution with you. Same ₹100 crore headline: a 15% pool taken pre-money knocks more than ten percent off your effective valuation, and the headline never moves. It's the most common way a valuation looks bigger than it actually is.

2. Liquidation preference — who gets paid first

When the company sells, the liquidation preference decides who gets paid before you, and how much. A 1x non-participating preference is the fair standard: the investor takes their money back or their ownership share, whichever is higher. Reasonable. Watch two words. "Participating": they take their money back first, then also their share of what's left — both, not either. A "2x" multiple: they collect double their cheque before you see a rupee. On a large exit nobody notices; on a modest one it's the difference between life-changing and disappointing — and most exits are modest.

3. Anti-dilution — what a bad year costs you

Anti-dilution protects the investor's price if you later raise at a lower valuation — a down round. The fair version, broad-based weighted average, adjusts gently. The dangerous one — a full ratchet — reprices every share they hold to the new low, as if they'd always invested there. One down round, and a real slice of the company moves from you to them. You sign it on your best day. It bites only on your worst — exactly when you can least afford it.

4. The cost that isn't on the cap table at all

You can own 70% of a company and still not run it. Protective provisions are the decisions the investor can veto — senior hires, the next raise, selling the company. Board composition decides whose hand is on the wheel. A drag-along can pull you into a sale you didn't choose. None of it shows up as a percentage. All of it decides how much room you have to operate. The economic clauses decide how much you keep; this one decides whether you're still the one making the calls.

The valuation is one line on the term sheet. The other forty are also the deal. Negotiate the headline — but read the structure first. That's where the real price is written.

This is a general framework for reading a term sheet, not a description of any specific company's terms. Each clause has a fair, market-standard version and a worse one dressed to look standard; knowing the difference is the negotiation.

Common questions

What should a founder look for in a term sheet beyond the valuation?

The valuation is one line; the real cost sits in four clauses underneath it — where the option pool is carved from (pre- vs post-money), the liquidation preference (1x non-participating is the fair standard), anti-dilution (broad-based weighted average vs full ratchet), and the control and protective provisions that decide who actually runs the company.

What does a 1x non-participating liquidation preference mean?

On a sale, the investor takes back either their money or their ownership share — whichever is higher — but not both. The versions to watch are "participating" (money back and then also a share of the rest) and a multiple like "2x" (double the cheque before founders see anything).

What's the difference between a pre-money and post-money option pool?

A pool carved out pre-money comes entirely from the founders and quietly lowers your effective valuation while the headline number stays the same. Carved out post-money, the incoming investor shares that dilution with you.

What is full-ratchet anti-dilution?

If you later raise at a lower price, a full ratchet reprices all of the investor's shares to that new low — as if they'd always invested there — moving a real slice of the company to them. The fair version, broad-based weighted average, adjusts gently instead.

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