Tools/Venture Debt Term Sheet Guide
Venture Debt Term Sheet Guide
Every clause in an Indian venture debt term sheet explained - interest, warrants, covenants, security, and fees - plus a negotiation checklist you can take into your next lender conversation.
What is a venture debt term sheet?
A venture debt term sheet is the document a lender issues after initial diligence, laying out the proposed facility in one or two pages: how much they will lend, at what rate, for how long, what security they take, and what equity warrants they expect. It is the negotiation stage - once signed, the deal moves to detailed loan documentation where changing terms becomes much harder.
Venture debt in India is typically raised by VC-backed startups alongside or between equity rounds - it extends runway without dilution beyond a small warrant. The catch: term sheets vary widely between lenders, and the headline interest rate is rarely the real cost. Warrants, fees, covenants, and prepayment terms move the all-in economics far more than a 1% rate difference.
Explore Venture Debt with Recur ClubThe 10 terms that matter - clause by clause
Every venture debt term sheet in India is built from these clauses. Here is what each one means and what "market standard" looks like right now.
Facility amount
What it means
The total debt the lender commits, often drawn in tranches tied to milestones.
Typical in India
20-35% of your last equity round is the common sizing rule in India.
Interest rate
What it means
The coupon you pay on drawn amounts, fixed or linked to a benchmark.
Typical in India
13-17% p.a. for venture debt in India, depending on stage and lender.
Tenure
What it means
How long you have to repay, including any moratorium on principal.
Typical in India
18-36 months, sometimes with a 3-6 month principal moratorium.
Warrants / equity kicker
What it means
Rights for the lender to buy a small equity stake at a set price - this is how venture debt lenders earn upside.
Typical in India
Warrant coverage of 8-15% of the facility amount, at the last round's price.
Security / hypothecation
What it means
The charge the lender takes over your assets - usually a first charge on current and movable assets.
Typical in India
First pari-passu charge on assets; personal guarantees are rare but sometimes asked.
Financial covenants
What it means
Promises you make - minimum cash balance, revenue thresholds, or information rights the lender monitors.
Typical in India
Minimum liquidity covenants and monthly MIS reporting are standard.
Prepayment terms
What it means
What it costs to repay early, and whether prepayment needs lender consent.
Typical in India
1-2% prepayment penalty, often waived after 12-18 months.
Processing fee
What it means
Upfront fee charged on the sanctioned amount at signing or first drawdown.
Typical in India
1-2% of the facility amount.
Drawdown window
What it means
The period during which you can draw the committed amount before it lapses.
Typical in India
6-12 months from signing; unused commitments may carry a small fee.
Events of default
What it means
Triggers that let the lender recall the loan - missed payments, covenant breaches, or a material adverse change.
Typical in India
Watch for vague MAC (material adverse change) clauses - push for objective triggers.
Negotiation checklist - 10 things to verify before signing
Run every term sheet through this list. Use the "Save as PDF" button above to keep a copy for your next lender call.
Total cost check: add interest, processing fee, and the value of warrants - compare lenders on all-in cost, not just the headline rate.
Warrant coverage: is it calculated on the sanctioned amount or drawn amount? Drawn is better for you.
Moratorium: ask for a principal moratorium so early months are interest-only while the capital is deployed.
Prepayment: negotiate the penalty down to zero after 12 months - you want a free exit if you raise equity.
Covenants: make sure minimum cash covenants leave real operating headroom, not just 1-2 months of buffer.
MAC clause: replace subjective "material adverse change" language with objective, measurable triggers.
Drawdown flexibility: confirm tranche conditions are within your control, not tied to vague lender discretion.
Security scope: keep the charge limited to business assets - resist personal guarantees from founders.
Consent rights: check what needs lender approval (new debt, dividends, asset sales) and trim anything that slows normal operations.
Exit scenarios: understand what happens to the debt and warrants in an acquisition or a down round.
Red flags that should stop you
Warrants on sanctioned, not drawn, amount
You give away equity upside on money you may never use. Insist warrants apply only to drawn amounts.
Uncapped or vague default triggers
A loosely worded MAC clause lets a lender recall the loan at the worst possible moment. Demand objective triggers.
Personal guarantees
Venture debt is underwritten on the business and its investors - founder personal guarantees are not market standard for funded startups.
Heavy prepayment lock-ins
A penalty that never steps down traps you in expensive debt even after a large equity raise.
Cross-default with group entities
A default in an unrelated group company should not sink your operating entity. Limit cross-default clauses.
Hidden fees
Commitment fees on undrawn amounts, annual monitoring fees, and legal cost pass-throughs add up - get every fee in writing upfront.
Frequently asked questions
Skip the term sheet guesswork
Instead of decoding one lender's terms at a time, let 125+ lenders compete on your profile. Recur Club delivers an indicative termsheet in 48 hours - venture debt, working capital, and term loans, side by side.