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.
Related terms
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