New Delhi, July 16 -- Ashwini Asokan and Anand Chandrasekaran were vacationing at a relative's home in Bengaluru when the renegotiation came through. It had ruined their time-off. They sat, not talking to anyone, when Asokan pulled out two slips of paper.

Hours earlier, in December 2023, they had been ready to sign a $50 million Series D fundraising round, which they had expected would finally give their Chennai-based artificial intelligence startup, Mad Street Den, room to breathe. But on the day of signing, the investment firm came back with new terms: no secondaries, or stake sales, for the earliest investors; stake dilution that would punish loyal believers; and board-control provisions that would effectively strip the company of its...