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What is a pay to play provision?
Pay to play is a common provision found in venture capital investment documentation. Mandated by the lead investor, it is directed at the other investors, not the company. In certain circumstances, it grants to the investors the right, and imposes the obligation, to participate in future financings on a pro rata basis. Generally, any investor that does not participate will have its preferred stock converted into common stock with no future anti-dilution protection. This provision thus incentivizes investors to invest in the next round.
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