At a glance
Raising capital is a critical milestone for any company, but the legal documentation dictates whether the founders retain control or inadvertently hand over the keys to the business. Investment rounds - whether Seed, Series A, or Private Equity buyouts - require meticulous legal structuring to balance the investor's need for downside protection with the founders' need for operational freedom. At Inamdar Legal, we represent both startups raising capital and investors deploying funds. We negotiate and draft the entire suite of investment documentation, from the initial Term Sheet to the definitive Share Subscription Agreement (SSA) and the amended Articles of Association.
Investment documentation involves multiple stages. It begins with a Term Sheet outlining the commercial deal, followed by due diligence, and concludes with binding agreements that dictate valuation, share issuance, and investor rights.
- Term Sheets (Binding and Non-Binding clauses)
- Share Subscription Agreements (SSA)
- Representations, Warranties, and Indemnities
- Conditions Precedent (CPs) and Closing Mechanics
The Term Sheet: Setting the Foundation
The Term Sheet is the roadmap for the investment. While mostly non-binding commercially, it sets the valuation (Pre-money and Post-money), the type of security being issued (Equity, Compulsorily Convertible Preference Shares - CCPS, or Convertible Notes), and the core investor rights. Crucially, it contains binding clauses regarding confidentiality and an 'Exclusivity Period' (or 'No-Shop' clause), which prevents the founders from soliciting other investors while due diligence is conducted.
- Pre-money valuation and calculation of the fully diluted cap table
- Selection of instrument (CCPS vs. Equity Shares)
- Binding Exclusivity and Confidentiality clauses
Share Subscription Agreement (SSA) Mechanics
The SSA is the primary binding contract where the investor agrees to buy, and the company agrees to issue, shares at a specific price. It details the mechanics of the 'Closing' - how and when the funds will be transferred and when the shares will be allotted. It also outlines the 'Conditions Precedent' (CPs), which are specific tasks the company must complete (e.g., obtaining regulatory approvals or fixing compliance issues discovered in due diligence) before the investor is obligated to wire the money.
- Tranche-based funding mechanics and milestones
- Comprehensive Conditions Precedent (CPs) for closing
- Post-closing covenants and compliance obligations
Representations, Warranties, and Indemnification
Investors base their valuation on the information provided by the founders. In the SSA, the company and the founders must make 'Representations and Warranties' (R&Ws) - legal statements that the company's financials are accurate, it has no hidden lawsuits, it owns its IP, and it is fully compliant with all laws. If these statements turn out to be false, the investor relies on the 'Indemnification' clause to recover their losses directly from the company or the founders personally.
- Exhaustive Representations and Warranties regarding company health
- Disclosure Schedules to limit founder liability for known issues
- Indemnification caps and survival periods for claims
Anti-Dilution and Liquidation Preference
Investors demand downside protection. An 'Anti-Dilution' clause protects their ownership percentage if the company raises funds in the future at a lower valuation (a 'Down Round'). A 'Liquidation Preference' dictates who gets paid first if the company is sold or goes bankrupt. A standard '1x Non-Participating' preference ensures the investor gets their money back before founders see a return, while more aggressive structures can severely impact founder payouts in an exit.
- Broad-based weighted average anti-dilution protection
- Structuring Liquidation Preferences (Participating vs. Non-Participating)
- Pay-to-Play provisions to encourage future funding participation
When to Review This
- Raising a Seed, Pre-Series A, or Series A funding round
- Issuing Convertible Notes or SAFEs (iSAFE in India)
- Negotiating a Term Sheet with a Venture Capital fund
- Structuring an Angel Syndicate investment