Anatomy of a Term Sheet: Right to Maintain Proportionate Ownership (a/k/a Preemptive Rights)

VC Ready Blog

As a preliminary matter, note that the “Right to Maintain Proportionate Ownership” is more commonly referred to as “Preemptive Rights” or the “Right of First Offer.” They are also sometimes referred to as the “Right of First Refusal,” though this term is more often used to refer to the right to purchase shares offered for resale by a stockholder (which we will discuss in a future post in this series).

Small Investors

ithacaVC

The short answer is that we completely believe that ALL investors (including FFAs) should have preemptive rights (just the right to invest in future rounds on a pro rata basis). And as stated above, I think they should use these rights. It is highly typical for a startup to have small investors on its cap table. Founders often raise money from friends and family and other angels. That is all well and good… and 100% normal.

Anatomy of a Term Sheet: Index

VC Ready Blog

5. Voting Rights and Protective Provisions. 8. Redemption Rights. 10. Registration Rights. 11. Management Rights and Investor Director Approval. 12. Right to Maintain Proportionate Ownership (a/k/a Preemptive Rights). 14. Right of First Refusal, Right of Co-Sale and Lock-up. 1. Overview. 2. Nature of a Term Sheet and Summary of Offering Terms. 3. Dividends. 4. Liquidation Preference.

Does Crowdfunding Work for Early Stage Growth Companies?

VC Deal Lawyer

Investors get no rights in the end product. You Want to Avoid Giving Non-Accredited Investors Preemptive Rights. Avoid giving those investors preemptive rights.

Anatomy of a Term Sheet: Pay-to-Play

VC Ready Blog

A Pay-to-Play provision provides that any investor failing to fully exercise her “Preemptive Rights” to participate in a future financing (which we’ll discuss in a later post) will have some or all of her shares of preferred stock converted into common stock or into another class of preferred stock with lesser rights (losing her anti-dilution protection and other rights in the process).