10 Terms Every Founder Should Know Before Raising Money
A term sheet or investor conversation moves fast, and it's full of language that sounds simple but carries real, specific legal weight. Here are the 10 terms that come up most, in plain language — with the actual document each one lives in.
1. Vesting Schedule
The timeline over which a founder or employee actually earns their full equity, rather than owning it all immediately. Protects the company if someone leaves early.
2. Vesting Cliff
A minimum period (commonly 12 months) before any equity vests at all. Leave before the cliff, and you get nothing — not even a partial amount.
3. Liquidation Preference
The right of an investor to get their money back first, before founders and other shareholders, when the company is sold or liquidated — before any remaining proceeds are split.
4. Valuation Cap
In a convertible note, the maximum company valuation at which an investor's money converts into equity — protecting early investors from being diluted if the company's value jumps sharply before the next round.
5. Non-Binding Effect
A clause stating that most of a document's terms aren't yet legally enforceable — common in term sheets, where only specific sections (like confidentiality) are meant to bind the parties immediately.
6. IP Assignment
The formal, written transfer of ownership of intellectual property — code, designs, content — from the creator to the company. Without it, the company may not actually own what it paid for.
7. Reserved Matters
A specific list of major decisions that require every founder's (or every major shareholder's) consent — not just a simple majority vote. Protects minority founders from being outvoted on fundamental issues.
8. Force Majeure
A clause excusing a party from performing an obligation due to events genuinely beyond their control — but a well-drafted one still requires payment for work already delivered.
9. DPIIT Recognition
Official startup status granted by India's Department for Promotion of Industry and Internal Trade — unlocks specific tax and compliance benefits, including deposit-rule exemptions for certain financing instruments.
10. Deemed Liquidation Event
A contractually defined event (like an acquisition or change of control) that triggers the same payout priority as an actual liquidation — even though the company itself isn't shutting down.
Starting a fundraise or investor conversation?
Our Term Sheet and Convertible Note templates use exactly this language, verified against current Indian law.
View Financing templates →This is general legal information, not legal advice — consult an enrolled advocate for your specific situation before signing any financing document.