Startup founders quickly learn not to take anything for granted. Least of all, their equity. Especially because, from idea to exit, it’s a wild ride with see-sawing power plays between them and their investors. 

Venture capitalists (VCs), haunted by mistakes over the last four years, are rewriting the rules. One term sheet and one clause at a time.

If Ashneer Grover of Bharatpe had to exit today over glaring corporate-governance issues in the fintech, his 9.5% stake, currently worth Rs 2,000 crore (US$240 million), would shrink to Rs 95,000. That is, if one considers the new “exit clauses” that VCs like 3one4 Capital, Yournest, and Blue Ashva Capital have proposed and even implemented in many popular new-age startups.

The era of hurried deal-making, driven by VCs’ fear of missing out, is over, and now VCs—both early-stage and large funds like Peak XV Partners (formerly Sequoia Capital India & SEA), Matrix Partners, and Accel—are using the cautious funding environment to enforce stricter terms.

They have traded that FOMO for spreadsheets; now it’s all about data points. There’s a heightened level of diligence and serious conversations around corporate governance, board and management constitution, cash management, transparency, and disclosures at all stages of fundraising, according to Rangam Sharma, counsel at Trilegal, an Indian law firm representing various foreign and Indian institutional investors.

Naturally, some founders are not having it.

In fact, one in every 10 deals fell through during term sheet negotiations in the year ended March 2024 due to founders and investors failing to agree on terms, The Ken has learnt. Just a year ago, this ratio was closer to 1:16.

And that’s just the tip of the iceberg. Deals that used to close in one to three months are now extended for over six, Vishnu Nair, founder of Arambh Legal added. That’s because when speed often trumped diligence, it led to corporate-governance lapsesBusiness Standardwhy are governance lapses  in Bharatpe and Byju’s as well as in e-commerce marketplaces like Zilingo and Trell, auto-workshop aggregator Gomechanic, healthtech Mojocare, and automation platform Groyyo.