Investor Terms & Rights
Term-sheet provisions that shape governance, control, and exit outcomes.
26 terms
Beginner
Intermediate
Anti-Dilution Protection
Contractual protections in the term sheet that shield investors from price decreases in down rounds.
Board Observer
An investor who attends board meetings but cannot vote on decisions.
Board Seat
A position on the company's board of directors, giving voting power on major company decisions.
Information Rights
An investor's right to receive regular financial reports and company updates.
Liquidation Preference
Investors' right to get their money back before common shareholders receive anything in an exit.
No-Shop Clause
A binding term sheet provision preventing the company from seeking other investors for a set period.
Non-Participating Preferred
Preferred stock where investors choose EITHER their money back OR their pro-rata share, not both.
Right of First Refusal (ROFR)
The company's or investors' right to buy shares before they can be sold to an outside party.
Voting Rights
The right to vote on company matters, typically one vote per share for common and preferred alike.
Advanced
Broad-Based Anti-Dilution
The more employee-friendly weighted-average formula that includes all shares in the calculation.
Deemed Liquidation Event
A corporate transaction (like a merger or sale) that is treated as a liquidation for preference purposes.
Drag-Along Rights
The right for majority shareholders to force all shareholders to sell in an acquisition.
Full Ratchet Anti-Dilution
The harshest anti-dilution: the conversion price drops to the exact price of any cheaper future round.
Narrow-Based Anti-Dilution
The harsher weighted-average formula using only outstanding preferred shares in the calculation.
Pari Passu
Latin for 'on equal footing'; meaning multiple investor classes share proceeds equally in priority.
Participating Preferred
Preferred stock that gets its money back first AND shares in remaining proceeds (double dip).
Participation Cap
A limit on how much participating preferred investors can receive before converting to common.
Pay-to-Play
A provision requiring investors to participate in future rounds or lose their preferred stock rights.
Preemptive Rights
The right to buy new shares before outsiders to prevent dilution, similar to pro rata rights.
Protective Provisions
Investor veto rights over specific major company actions like selling, raising debt, or changing terms.
Redemption Rights
An investor's right to force the company to repurchase their shares after a set period.
Registration Rights
An investor's right to force a company to register their shares for public sale via the SEC.
Side Letter
A separate agreement granting specific investors special terms beyond the main deal documents.
Tag-Along Rights
The right for minority shareholders to join a sale if majority shareholders sell their shares.
Weighted Average Anti-Dilution
An anti-dilution formula that partially adjusts the conversion price based on the size of the down round.
Other categories
Definitions are intended as plain-English educational summaries. Not legal, tax, or investment advice.