Most deals that fall apart at the documentation stage do so because of three specific SHA provisions. We break down what they are and how to handle them.
A term sheet is not a closed deal. In our experience, most deals that collapse after the term sheet is signed do so in the Shareholders’ Agreement. Founders and investors have usually agreed on valuation. They fall out over three clauses.
1. Governance Rights
This is where control gets decided. The usual flashpoints are:
- Board composition and observer seats
- Voting thresholds
- Reserved matters (the list of decisions that need investor consent)
- Founder decision-making authority
Excessive investor control demotivates founders. Too little governance worries institutional investors. The fix is a short, specific reserved-matters list covering decisions that actually change the risk profile, such as new share issuances, related-party transactions, changes to the business plan and large borrowings. Routine operating decisions stay with management. A 30-item list signals mistrust. A focused 8–10 item list signals discipline.
2. Exit Rights
Every investor wants a clear path to liquidity, and every founder wants to avoid being forced into a sale. The clauses to negotiate are:
- Lock-in periods on founder shares
- Tag-along and drag-along rights
- Right of first refusal (ROFR) and right of first offer (ROFO)
- Timelines and triggers for an exit or IPO
Drag-along is the most contested. Founders should push for a minimum valuation floor and a minimum holding period before it can be triggered. Both sides should also confirm that these provisions are reflected in the company’s Articles of Association, because that affects how enforceable they are under Indian law.
3. Economic Protections
These are the clauses that quietly change what your equity is worth:
- Liquidation preference (1x non-participating is the market norm for most growth rounds)
- Anti-dilution protection (broad-based weighted average is far more founder-friendly than full ratchet)
- Founder vesting, good-leaver/bad-leaver terms and non-compete scope
- Pricing and exit provisions that must comply with FEMA rules for non-resident investors
Aggressive terms here don’t just cost founders value. They create a precedent that blocks the next round, because later investors price in the prior stack.
How to avoid last-mile failures
- Negotiate these three areas at term-sheet stage, not at SHA stage.
- Agree on a clause-by-clause issues list before drafting begins.
- Keep the CP/CS tracker live from day one so nothing is discovered at closing.
- Use experienced transaction advisers who have seen how these clauses play out across mandates.
Equity360’s Transaction Advisory team handles SHA and SSPA review, negotiation and closing documentation.
