The Founder's Guide to SHA Negotiation: What to Accept, What to Push Back On

Founders who sign their first SHA without counsel often discover, at their second or third funding round, that the terms they accepted in the excitement of closing their seed round have created structural problems that are expensive and sometimes impossible to fix. **The Three SHA Terms That Matter Most** 1. **Liquidation Preference**: A 1x non-participating preference is market standard for early rounds. Participating preference (where investors get their money back AND share in the upside) is highly unfavourable to founders and should be resisted. In a 2x participating scenario, an investor who puts in ₹10 crore on a ₹100 crore valuation receives ₹20 crore AND their pro-rata share of the remainder — at all exit values below approximately ₹150 crore, founders receive nothing. 2. **Anti-dilution Protection**: Full ratchet is founder-hostile and extremely uncommon in the Indian market at seed/Series A. Broad-based weighted average anti-dilution is market standard and acceptable. Narrow-based weighted average is less favourable but manageable. Never accept full ratchet anti-dilution — it creates cliff-edge consequences in down rounds. 3. **Board Composition**: Founders should fight to retain board control (or at least equal board representation) through Series A. An investor-controlled board at Series A means the board can approve decisions — including key hires, budget, and strategic direction — over founder objection. **What to Accept Without Drama** - Information rights (annual, quarterly, monthly financials) - Pre-emption rights (right to participate in future rounds) - Tag-along rights (investors can sell alongside founders) - Drag-along rights (with reasonable threshold — typically 75% shareholder approval) - ROFR (right of first refusal on founder share transfers) **What to Push Back Hard On** - Participating liquidation preference (push for non-participating) - Full ratchet anti-dilution (insist on weighted average) - Investor consent rights over operational decisions below a materiality threshold - Key man provisions with no carve-out for founder departure with cause - Vesting acceleration only on change of control (should include for-cause termination) **Vesting** Four-year vesting with a one-year cliff is standard and reasonable. Founders should ensure that already-vested equity at the time of investment is carved out of the vesting schedule (not re-vested as a condition of investment). Acceleration on double-trigger (change of control AND termination without cause) is market standard.