Pay-to-Play

Definition

A pay-to-play provision penalizes investors who do not participate in a future financing, typically converting their preferred stock to common or stripping protections.

How it comes up in fundraising

Pay-to-play appears in tough markets and recapitalizations to force insiders to keep supporting the company or lose their privileges.

Frequently asked questions

Is pay-to-play good or bad for founders?

Often good: it pressures investors to fund the company in hard times and cleans preference stacks of non-supporting holders.

When do pay-to-play terms appear?

Mostly in down rounds and restructurings, where new money demands that old money commit or step aside.

Cite this term

Round Funded. "Pay-to-Play." Startup Fundraising Glossary.

Stable URL, it will not change: https://www.roundfunded.com/en/glossary/pay-to-play

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