Term sheet provisions

Protective provisions

A defined list of corporate actions that require the consent of the preferred holders as a class, independent of board approval or common stockholder vote. Functionally a veto.

• Commonly covered: sale of the company, issuing senior or pari passu securities, changing the size of the board, amending the charter, incurring debt above a threshold, and declaring dividends.
• The negotiable dimensions are the length of the list, the thresholds within it, and whether consent runs by series or across all preferred voting together.
• Series-by-series consent gives every round a veto and grows harder to manage with each financing. A single combined preferred vote is simpler and is usually the founder-preferred structure.

Also described at: NVCA model certificate of incorporation

Drag-along

A provision compelling holders who did not approve a sale to vote for it and sell on the same terms, preventing a small holder from blocking a transaction.

• The key variable is the trigger: which combination of board, preferred, and common approval is required before the drag can be exercised.
• A drag triggered by preferred alone can force a sale at a price that pays the preference in full and leaves common with nothing.
• Requiring common approval in the trigger is the standard counterweight.

Also described at: Wikipedia · Wikidata · NVCA model voting agreement

Pay-to-play

A provision penalising existing preferred holders who do not participate pro rata in a subsequent financing, typically by converting their preferred to common and stripping the preference and protective provisions.

• Rare in favourable financing conditions and common in difficult ones, because it is the mechanism by which a down round is made to happen.
• Variants range from full conversion to common through to partial conversion or loss of anti-dilution only.
• From the company's side it is the single most effective clause for compelling insiders to fund a bridge.

Also described at: NVCA model certificate of incorporation

No-shop and exclusivity

A binding provision in an otherwise non-binding term sheet, prohibiting the company from soliciting or negotiating competing offers for a defined period.

• Most of a term sheet is non-binding. The no-shop, confidentiality, and expense provisions typically are binding.
• The period is the negotiable term. A long exclusivity with no deadline for the investor to complete diligence transfers all timing leverage to the investor.
• A reciprocal commitment - exclusivity in exchange for a defined closing timeline - is the standard counterweight.

Board composition math

Board control is an integer problem, and the seat count decides it before any individual is named. The two structures that look like compromises - an even board, and an odd board with a swing independent - behave very differently.

Field	Value
Formula	Votes required for a simple majority = floor(seats/2) + 1. A bloc controls the board when its seats are greater than or equal to that number
Worked	5 seats require 3 votes. A 2-2-1 split gives no group control and makes the independent decisive on every contested matter
Worked, even board	4 seats require 3 votes, so a 2-2 split cannot pass anything. Deadlock is the default outcome, not a tie-break
Worked, investor control	3 of 5 seats is control outright; no founder or independent vote is needed for any board action

• An even board is not a compromise, it is a mutual veto. Whichever side benefits from the status quo wins every deadlock, which is usually not the side that needed the resolution passed.
• The right to appoint the independent is worth more than any single seat, and it is why that appointment is normally drafted as a mutual-consent term rather than allocated to a series.
• Board math is only half the control picture. Protective provisions run to the preferred as a class regardless of the board, so a founder-controlled board can still be unable to act. Read both together.

Source: NVCA model Voting Agreement (board composition provisions)

Drag-along thresholds and how they drift

A drag is exercisable when the stated approvals are obtained. Whether a holder can block therefore depends on whether it holds more than the gap between the requirement and the votes available without it - and that gap moves as the share register changes.

Field	Value
Formula	A holder blocks a class-vote requirement of fraction m when its holding exceeds (1 - m) of the class. For a simple majority of a class, a holder blocks by holding more than 50 percent of it
Setup	The drag requires a majority of the preferred and a majority of the common, voting as separate classes. Common outstanding 10,000,000 shares
Worked, at signing	Founders hold 5,500,000 of the common = 55.0 percent. No drag can be exercised without them
Worked, after a secondary	Founders sell 1,000,000 shares: 4,500,000/10,000,000 = 45.0 percent. The same clause is now exercisable against them

• The threshold is measured on a class whose composition changes every time an option is exercised. A drag that is unexercisable at signing can become exercisable through nothing more than employees exercising vested options, with no transaction and no amendment.
• A drag triggered by the preferred alone can force a sale at a price that clears the preference and leaves common with nothing. Requiring a common majority in the trigger is the standard counterweight and is worth more than any cap on the preference.
• Check whether the common-vote requirement is a majority of the common or a majority of the common held by the founders specifically. The second is a much weaker protection once founders have sold or left.

Source: NVCA model Voting Agreement (drag-along provisions)

Also described at: Wikipedia · Wikidata

Redemption rights and the number they produce

A redemption right lets the holder require the company to repurchase its preferred after a stated period, at the preference amount plus accrued and unpaid dividends. It is usually unenforceable as a cash claim and valuable as a lever.

Field	Value
Formula	Redemption price = x*I + accrued dividends = x*I*(1 + d*t) for a simple cumulative dividend, payable in stated instalments out of funds legally available for the purpose
Worked	I = 10,000,000 at 1x with d = 0.08 cumulative simple, redeemable after t = 5 years: 10,000,000*(1 + 0.40) = 14,000,000
In instalments	Payable over three annual instalments: 14,000,000/3 = 4,666,667 each
The binding constraint	Redemption is limited to funds legally available; a company without surplus cannot lawfully pay

• The number matters more than the payment. A redeemable position carries a stated, dated claim that a board has to disclose and act on, which is what turns a redemption right into a sale process.
• This is also why a cumulative dividend matters even when no dividend is ever declared: it sets the redemption number, and it grows the preference amount in a liquidation at the same time.
• Check whether redemption is at the holder's election or automatic, and whether failure to redeem triggers a change in board composition. The consequence clause is the operative term, not the price.

Cumulative dividends and where they land

A cumulative dividend accrues whether or not it is declared and is added to the preference amount. Whether it compounds is a single drafting choice with a large arithmetic consequence over a long private hold.

Field	Value
Formula	Preference at time t = x*I*(1 + d*t) for simple accrual, or x*I*(1 + d)^t if the dividend compounds. Non-cumulative dividends add nothing unless declared
Worked, simple	10,000,000 at 1x with d = 0.08 over t = 5: 14,000,000
Worked, compounding	10,000,000 * 1.08^5 = 14,693,281
Effect on the indifference point	At p = 0.20, E* moves from 10,000,000/0.20 = 50,000,000 to 14,000,000/0.20 = 70,000,000
Over seven years	15,600,000 simple against 17,138,243 compounding

• The dividend is rarely paid and almost always collected, through the liquidation preference or the redemption price. Treat it as a growing preference rather than as a yield.
• A 20,000,000 widening of the dead zone is a larger transfer from common than most of the terms that get negotiated harder, and it arrives through a clause that reads as a technicality.
• A non-cumulative dividend on preferred that is never declared is economically nil. It can be conceded without cost, and conceding it visibly is sometimes worth more than the term.

Also described at: NVCA model certificate of incorporation

Founder vesting and acceleration arithmetic

Founder shares are typically subject to repurchase or forfeiture on a vesting schedule with a cliff. Acceleration changes what happens to the unvested balance on a change of control, and single and double trigger are materially different instruments.

Field	Value
Formula	Vested shares at month t on an n-month schedule with a c-month cliff = 0 for t < c, else s*t/n. Single trigger: the unvested balance accelerates on a change of control. Double trigger: acceleration requires both a change of control and a qualifying termination within a stated window
Setup	s = 2,000,000 founder shares, n = 48 months, c = 12 months
Worked, at t = 11	0 shares vested - the cliff has not been reached
Worked, at t = 12	2,000,000 * 12/48 = 500,000
Worked, at t = 30	2,000,000 * 30/48 = 1,250,000, leaving 750,000 unvested
Worked, acquisition at t = 30	100 percent single trigger: 2,000,000. 50 percent acceleration: 1,250,000 + 375,000 = 1,625,000. Double trigger with no termination: 1,250,000

• An acquirer prices unvested founder equity as retention budget. Full single-trigger acceleration removes the retention, and acquirers routinely take the value back out of the purchase price - so the founder pays for it twice and receives it once.
• Double trigger is the structure that survives diligence, because it pays only in the case founders actually fear: the deal closes and they are removed.
• Credit for time already served before the vesting schedule is imposed is a separate negotiation from the schedule itself, and it is usually cheaper to win. Ask for the vesting start date, not just the length.

Also described at: Wikipedia · Wikidata

Right of first refusal and co-sale, in sequence

A proposed transfer runs through three gates in order: the company's refusal right, the investors' secondary refusal right, and then co-sale. Each stage reduces what the seller can actually sell, and the arithmetic of the last one is the least anticipated.

Field	Value
Formula	After the refusal rights leave n shares saleable, co-sale reduces the seller to n * s_seller/(s_seller + s_participating), with the balance sold by the participating holders
Setup	A founder proposes to sell 1,000,000 shares and holds 8,000,000. Co-sale participants hold 4,000,000
Worked, gates one and two	The company declines; investors take 400,000 under the secondary right, leaving 600,000
Worked, co-sale	The founder sells 600,000 * 8,000,000/12,000,000 = 400,000; the participants sell 200,000
Result	A proposed 1,000,000-share sale becomes a 400,000-share sale

• Co-sale participation is measured on shares held, not on the number of participants, so a single large holder exercising has the same effect as all of them. Compute the worst case, which is full participation.
• In practice founder secondary is done by express waiver rather than by running the gates, because the buyer wants a fixed size and the process cannot deliver one. Negotiating the waiver is the transaction.
• The notice periods at each gate are additive and often total months. A sale that has to close by a date should start from the notice calendar, not from the price.

Source: NVCA model Right of First Refusal and Co-Sale Agreement

Also described at: Wikipedia · Wikidata · NVCA model right of first refusal and co-sale agreement

Information and pro-rata thresholds - shares versus percentages

Rights reserved for holders above a stated threshold behave completely differently depending on whether the threshold is an absolute share count or a percentage. Dilution cannot touch the first and steadily erodes the second.

Field	Value
Formula	A percentage threshold q is lost once FD grows past s/q. An absolute share threshold is unaffected by dilution and is lost only on transfer
Setup	A holder with s = 600,000 shares and a 5 percent threshold
Worked	The right survives while FD < 600,000/0.05 = 12,000,000 shares
At FD = 11,411,765	5.258 percent - the right holds
After one more round to FD = 14,000,000	600,000/14,000,000 = 4.286 percent - the right lapses with no amendment and no notice

• This is the quiet mechanism by which early investors lose information rights and pro-rata rights: nobody removes them, the denominator simply grows. The holder usually discovers it when it asks to exercise pro-rata.
• Well-drafted documents define the major-holder threshold as an absolute share number and restate it after any split, precisely to remove this drift. If a term sheet uses a percentage, that is a substantive choice worth raising.
• The same arithmetic applies to protective provisions that run to a series while a minimum number of its shares remain outstanding. Conversion or redemption of part of a series can extinguish the veto for the rest of it.

Source: NVCA model Investors' Rights Agreement (information and pro-rata provisions)

The protective provision list, and the four structures a consent can take

A protective provision is a veto over a specified corporate action. The list determines what is blocked; the consent structure determines who blocks it. Negotiating the list without negotiating the structure settles the smaller half of the question.

Field	Value
Formula	Consent threshold as a fraction of the fully diluted company = m * (preferred as a fraction of the company), where m is the fraction of the class required. A holder blocks alone when its holding exceeds (1 - m) of the class
Class majority, all preferred together	m = 0.50 on a class holding 61.600 percent of the company: the consent needs 30.800 percent of the company
Class supermajority	m = 0.6667: 41.067 percent of the company
Series by series	Each series consents separately, so a four-series stack has four independent vetoes
Named series consent	One series holds an unconditional veto over the listed action regardless of the rest of the class
What is usually on the list	Sale of the company; charter amendments adverse to the preferred; issuing senior or pari passu stock; changing authorised share counts; redemptions and repurchases; dividends; indebtedness above a threshold; changing the size of the board

• Series-by-series consent is the structure that ages worst. Each new round adds a veto, and by the fourth round a routine charter amendment needs four separate consents from holders with different incentives and different remaining stakes.
• A single combined class vote is simpler and is usually the founder-preferred structure, but it concentrates the veto in whichever holders can assemble a majority of the class - which after a large late round may be one investor plus one other.
• The list is negotiated as a governance point and prices like an economic one. The consent over issuing senior stock is a veto over the next round; the consent over indebtedness is a veto over venture debt; the consent over board size is a veto over resolving a deadlock.
• Read the adverse-effect language separately from the list. A provision requiring a series vote on any amendment that adversely affects that series is a general-purpose veto that does not appear as a list entry.

Source: NVCA model Amended and Restated Certificate of Incorporation (protective provisions) and model Certificate of Incorporation voting provisions

Also described at: NVCA model certificate of incorporation

What a class majority actually requires on a real cap table

Consent thresholds are stated as fractions of a class, and the class is a moving fraction of the company. Converting the threshold into a share of the fully diluted company shows who can grant it, who can block it, and which coalitions are decisive.

Field	Value
Formula	Fraction of the company needed = m * p_class. Series j holds p_j/p_class of the class and blocks alone when that exceeds 1 - m
Setup	Four-series ledger: Seed 9.600, Series A 16.000, Series B 16.000, Series C 20.000 percent of the company. The preferred class holds 61.600 percent
Class majority	0.50 * 61.600 = 30.800 percent of the company, or 7,549,020 shares
Each series' share of the class	Seed 15.584, Series A and B 25.974 each, Series C 32.468 percent
Who can block alone	Nobody - the largest holding is 32.468 percent of the class and blocking requires more than 50 percent
Decisive coalitions	Series B plus Series C = 58.442 percent of the class, a majority. Series A plus Series C = 58.442 percent. Seed plus Series A plus Series B = 67.532 percent
Under a two-thirds supermajority	Blocking requires more than 33.333 percent of the class, which Series C alone has at 32.468 percent

• The supermajority is the term that hands the newest investor a unilateral veto here, and it does so without naming it. Moving m from 0.50 to 0.6667 converts a coalition problem into a single consent, and it is presented as a stricter standard rather than as a transfer of control.
• Because the class is a moving fraction of the company, every subsequent round changes these figures. A holder that could block at the time it invested may not be able to two rounds later, and nothing in the documents will have changed.
• Compute the coalition table before conceding a threshold. The relevant question is never the percentage; it is which two holders can act together and whether the founder can get to either of them.
• Options and the unallocated pool are common stock and do not vote in a preferred class vote, so the pool's 5.760 percent is irrelevant to every figure above. It does matter to any consent requiring a common vote.

Series-by-series consent multiplies with every round

A consent that runs to all preferred as one class needs one negotiation regardless of how many series exist. A consent that runs series by series needs one negotiation per series, and the number of series only ever grows. The cost of the structure is invisible when it is agreed and compounding thereafter.

Field	Value
Formula	Consents required = 1 for a class vote, or n for series-by-series with n series. A series-specific veto survives while that series has shares outstanding above any stated minimum
At the seed round	One series, so the two structures are identical and the choice appears costless
After Series C	A class vote needs 30.800 percent of the company in one negotiation; series-by-series needs four separate majorities
The smallest veto	Seed holds 9.600 percent of the company and, under series-by-series consent, a full veto over every listed action
Minimum-shares conditions	A veto drafted to survive while a stated minimum of the series remains outstanding can be extinguished by conversion or repurchase of part of the series
Where it bites	A charter amendment for a routine pool increase, a bridge, or a sale can require consent from a holder whose remaining economic interest is a rounding error

• The asymmetry is what makes this worth raising at the seed round rather than the fourth one: the founder is negotiating the structure once, at the moment it costs nothing, on behalf of every future round.
• A holder whose stake has been diluted to a few percent has the least to lose from blocking and the least to gain from agreeing, which is exactly the wrong incentive to attach a veto to.
• The usual compromise is a class vote for the general list plus a series vote confined to amendments that adversely and specifically affect that series. That is a much narrower veto and it is defensible on its own terms.
• Where a series-by-series structure already exists, check the minimum-shares condition on each series. Extinguishing a stale veto by a partial conversion or repurchase is sometimes cheaper than obtaining the consent.

Board observers - what the right actually delivers

An observer attends board meetings and receives board materials without voting and without a director's fiduciary duties. It is granted as a lesser alternative to a seat and is not a lesser version of the same thing: the information rights are nearly identical and the influence is entirely informal.

Field	Value
Formula	No arithmetic. Observers are excluded from the board count, so they do not change the majority threshold of floor(seats/2) + 1
What the observer gets	Notice of meetings, board packages, and the right to attend and speak
What the observer does not get	A vote, a fiduciary duty to the company, or the ability to be counted towards a quorum
Standard limitations	Exclusion from executive session; exclusion where attendance would waive attorney-client privilege or create a conflict; a confidentiality undertaking
Board arithmetic	A board of 5 seats needs 3 votes with any number of observers present. Observers change the room and not the count
Who asks for it	Holders too small for a seat, and holders whose own conflicts make a directorship awkward

• The exclusion for privilege and conflicts is the clause that matters, because it is the mechanism by which an observer is kept out of exactly the discussions it most wants to attend - a competing portfolio company, a sale process involving an affiliate, litigation.
• Observer rights accumulate. Four rounds of granting one observer produces a board meeting with four non-voting attendees, which changes what gets discussed at the meeting rather than what gets decided.
• Because the observer owes the company nothing, the confidentiality undertaking is the only protection. Ask for it in the document rather than relying on the investor's policy.
• An observer right is much easier to remove than a board seat, since it usually sits in a side letter or the investors' rights agreement rather than in the charter or the voting agreement. That asymmetry is a reason to prefer granting it.

Source: NVCA model Investors' Rights Agreement (board observer provisions)

Deadlock, and the four ways out of it

An even board splits evenly, and a split vote fails. Because failure is a decision in favour of the status quo, a deadlock is not neutral: it resolves in favour of whichever side does not need the resolution passed.

Field	Value
Formula	A simple majority of n seats is floor(n/2) + 1. On an even board an evenly split bloc structure cannot reach it, so no resolution passes
The arithmetic	4 seats require 3 votes; a 2-2 split reaches 2. 6 seats require 4; a 3-3 split reaches 3
Route one, an independent seat	Move to 5 seats with a mutually appointed independent. Majority becomes 3 and the independent is decisive on every contested matter
Route two, a casting vote	Give the chair a second vote on a tie. This is control, relabelled, and it is usually resisted for that reason
Route three, escalation	Refer the deadlocked matter to a stockholder vote or to a defined dispute process, which relocates the deadlock to the share register
Route four, a deadlock trigger	Define a consequence - a buy-sell, a sale process, a change in board composition - that makes deadlock costly to both sides
The status quo bias	Whoever benefits from nothing happening wins. Identify which side that is on each foreseeable matter before agreeing an even board

• An even board is not a compromise, it is a mutual veto. It is agreed because it looks balanced on the page and because neither side wants to argue about the independent, and the cost arrives at the first contested decision.
• The right to appoint the independent is worth more than any single seat, which is why it is normally drafted as a mutual-consent term rather than allocated to a series. A seat allocated to a series is not independent whatever it is called.
• Board arithmetic is only half of control. Protective provisions run to the preferred as a class regardless of board composition, so a founder-majority board can still be unable to act. Read the two together and build a single matrix of who can do what.
• A deadlock trigger with a real consequence is the only route that changes behaviour before the deadlock happens. The other three change what happens afterwards.

Source: NVCA model Voting Agreement (board composition provisions)

A drag-along does not override a protective provision

A drag compels holders to vote for and sell into an approved transaction. A protective provision requires the preferred's consent before the transaction can be approved at all. The two operate at different stages, so satisfying the drag does not satisfy the consent, and a holder can be dragged on a deal it was able to block.

Field	Value
Formula	Sequence: obtain the protective provision consent (a class or series vote), then obtain the drag trigger approvals, then exercise the drag against the remaining holders. Each step has its own threshold
Step one, the consent	A deemed liquidation event needs the preferred's consent: 30.800 percent of the company under a class majority
Step two, the drag trigger	Typically the board, plus a majority of the preferred, plus in the better-drafted version a majority of the common
Step three, the drag itself	Binds every holder party to the agreement, whether or not it voted for the deal
Where the gap opens	A holder that is part of a blocking coalition at step one, but is outvoted at step two, is dragged on a deal it could have prevented had it acted earlier
The common-vote counterweight	Requiring a majority of the common at step two is worth more to employees and founders than any cap on the preference, because it puts the residual claimants inside the trigger

• The practical lesson is about timing rather than thresholds. A holder's leverage is at the consent stage, and it is spent by the time the drag is being exercised. Raising an objection after the trigger has been met is raising it too late.
• A drag triggered by the preferred alone can force a sale at a price that pays the preference in full and leaves common with nothing. That is not a drafting accident - it is the term working as written - and the fix is the common vote in the trigger.
• Check whether the common-vote requirement is a majority of the common or a majority of the common held by the founders. The second is much weaker once founders have sold or left, and it degrades silently as options are exercised.
• Drags usually carry conditions protecting the dragged holder: consideration in the same form, representations limited to title, liability capped at proceeds and several rather than joint. Those conditions are where a dragged minority actually gets protected.

Source: NVCA model Voting Agreement (drag-along provisions) and model Amended and Restated Certificate of Incorporation (protective provisions)

Registration rights are dormant until they are not

Demand, piggyback and short-form registration rights all require the company to be public or to be going public. They cost nothing at the time they are granted and they constrain the underwriting of the offering that eventually happens, which is when they are read for the first time.

Field	Value
Formula	No arithmetic in the grant. The negotiated variables are the number of demands, the earliest date they become exercisable, the minimum aggregate offering size, the deferral right, and the cut-back priority
Demand	Requires the company to register the holder's shares. Gated by a date or a period after the initial public offering, a threshold of holders joining, and a minimum offering size
Piggyback	Inclusion in a registration the company is already making. Not gated by a date, which is what makes it the right that gets used
Short-form	A demand using the short registration form once the company is eligible, limited in number per twelve-month period
Company deferral	A right to postpone a demand once in any twelve-month period, usually for a stated number of days
Expiry	Rights normally terminate on a stated date after the offering, or when the holder's shares become freely saleable without registration

• The clause that does real work is the cut-back priority, because an offering is sized by the underwriters and not by the holders' requests. Priority decides who is cut and by how much when the requests exceed the size.
• Demand rights are almost never exercised against a healthy company, because a demand registration is an announcement that insiders want out. The right's value is as leverage over the timing and composition of a company-initiated offering.
• The lock-up is the mirror obligation and it applies to everyone above a threshold, including founders and often employees. Read the release language: a lock-up that releases early for one holder and not others is a real economic difference.
• These are the terms most often granted without negotiation on the reasoning that they only matter in a good outcome. That is true, and the good outcome is where the money is.

Source: NVCA model Investors' Rights Agreement (registration rights)

Also described at: NVCA model investors' rights agreement

The underwriter cut-back, worked

In a piggyback or a demand the underwriters set the size of the offering. If the shares requested exceed what the market will take, the requests are cut back - the company's own shares first in priority, then the selling holders pro rata to the shares each requested. The arithmetic is a single ratio applied to every request.

Field	Value
Formula	Cut-back factor = shares the underwriters will include / total shares requested. Each holder sells its request multiplied by that factor
Requests	Founders 2,000,000, Seed 2,352,941, Series A 3,921,569, Series B 3,921,569, total 12,196,079
Underwriters will include	5,000,000 shares from selling holders
Factor	5,000,000/12,196,079 = 40.997 percent
Result	Founders 819,936, Seed 964,630, Series A 1,607,717, Series B 1,607,717
Check	5,000,000 shares, equal to the allowance
If the company's own shares come first	An offering sized at 8,000,000 shares of which the company sells 3,000,000 leaves exactly this 5,000,000 for holders

• A holder that requests more than it wants to sell receives a larger share of the cut-back, because the factor is applied to the request. That is a well-known and entirely legitimate response, and it is why sophisticated holders over-request.
• Priority is the term to read, not the factor. Company shares ahead of holders is standard; holders ahead of the company is not; and a named series ahead of the other holders is the version that is worth objecting to.
• Founders are usually inside the pro rata group rather than behind it, which is worth confirming. A founder placed behind the investors in a cut-back can be cut to nothing in a small offering.
• The same mechanic appears in the co-sale agreement, where participation is measured on shares held rather than shares requested. Two similar-looking pro rata rules with different bases produce different answers, so check which one applies.

Source: NVCA model Investors' Rights Agreement (underwriter cut-back provisions)

Mandatory conversion, and the threshold that decides whether the preference survives

A qualifying public offering converts the whole preferred stack to common automatically, extinguishing every preference and every protective provision at once. Whether an offering qualifies is a definition with two numbers in it, and an offering that misses either one leaves the preference in place in a public company.

Field	Value
Formula	Mandatory conversion occurs on an offering at a price per share of at least k times the original issue price with gross proceeds of at least a stated amount. Below either threshold conversion requires the ordinary class vote instead
Setup	Series C issued at 6.1200. A threshold of 3 times the original issue price sets the qualifying price at 18.3600
An offering at 12.0000	Below 18.3600, so no mandatory conversion. Series C keeps a 30,000,000 preference and its consent rights
An offering at 20.0000	Above the threshold and above any stated minimum size, so the whole stack converts and every holder receives p of the company
Value of the preference at 12.0000	Series C's 20.000 percent of a 294,117,660 market value is 58,823,532, against a 30,000,000 preference - so at that price the preference is worth less than the stock and conversion is voluntary anyway
Where the threshold bites	At an offering price between the preference indifference point and the qualifying price, the holder prefers not to convert and cannot be forced to

• The threshold exists to stop a company going public at a price that leaves the preferred worse off than a private sale. Set high, it hands the preferred a veto over the offering; set low, it removes the protection the preference was bought for.
• A separate series consent for conversion, layered on top of the price threshold, is the version that gives the most recent investor a veto over the public offering itself. That is worth identifying as a control term rather than a mechanical one.
• Some charters allow the class to elect conversion by vote at any price. Where that exists, an offering below the threshold can still be done, but only with the consent the threshold was designed to make unnecessary.
• Preferred stock outstanding after an offering is unusual and expensive: the preference has to be disclosed, it complicates the share count used for earnings per share, and it means the underwriters are selling a junior security. Most offerings are structured to clear the threshold for exactly that reason.

Source: NVCA model Amended and Restated Certificate of Incorporation (mandatory conversion provisions)

Pro rata, passing, and super pro rata, on the same round

A pro rata right lets a holder invest enough to keep its percentage flat. Investing its own percentage of the new money is exactly sufficient, whatever the price. Investing more than that increases the percentage, and the arithmetic of how much more is straightforward once the price is known.

Field	Value
Formula	To hold q constant through a round of R, invest q*R. To reach a target q', invest (q'*FD_post - s_held) * price, where FD_post is unchanged by who buys the round
Setup	Series A holds 3,921,569 shares = 20.000 percent before a Series C that raises 30,000,000 at a price of 6.1200. Post-round FD is 24,509,805 whoever buys
Passes entirely	Ownership falls to 16.000 percent
Pro rata	0.20000 * 30,000,000 = 6,000,000, buying 980,392 shares for a total of 4,901,961 = 20.000 percent
Super pro rata at 1.5 times	9,000,000 buys 1,470,588 shares for a total of 5,392,157 = 22.000 percent
Cost of each point	Moving from 20.000 to 22.000 percent costs 3,000,000, so a point of ownership costs 1,500,000 at this price
What the company gives up	Allocation, not cash. Every dollar of pro rata is a dollar the new lead cannot take, which is why leads negotiate pro rata waivers in a competitive round

• The right is an option struck at the round price. Its value is not the ownership it preserves but the ability to decline, and it is worth most in exactly the rounds where the holder has the best information about whether to exercise.
• Super pro rata is the same right with a multiplier, and it is a much more aggressive ask because it lets an existing holder take allocation away from a new lead. Where it exists it is usually confined to a stated cap or a single round.
• A holder that passes is not diluted by the pro rata it declined; it is diluted by the round, at the same rate as everyone else. The pro rata right does not protect against dilution, it offers the chance to buy it back at the round price.
• The post-money SAFE moved pro rata out of the instrument and into a separate side letter. If no side letter was signed, the right does not exist regardless of what was discussed.

Double trigger acceleration - the definitions are the whole term

Double trigger acceleration pays only if two things happen: a change of control, and a qualifying termination within a stated window after it. The percentage accelerated is the headline. The window length, the definition of a qualifying termination and the definition of good reason are what determine whether it ever pays.

Field	Value
Formula	Vested shares at month t on an n-month schedule = s*t/n after the cliff. Double trigger pays the unvested balance s*(1 - t/n) if a qualifying termination occurs within the window following the change of control
Setup	2,000,000 founder shares, 48-month schedule, 12-month cliff. Change of control at month 30
At the closing	Vested 1,250,000, unvested 750,000
Terminated at month 38, 12-month window	Vested 1,583,333, so acceleration delivers the remaining 416,667 shares - worth 4,250,000 at a 10.2000 exit price
Same termination, 6-month window	Nothing accelerates. The window expired at month 36
Constructive termination	If good reason is not defined, an acquirer can move the role, the title or the location and let the founder resign, which is not a qualifying termination
Single trigger for comparison	The full 750,000 accelerates at the closing regardless of what happens afterwards

• The window is the term to negotiate and it is the one most often left at whatever the first draft says. A window shorter than the acquirer's normal integration period converts double trigger acceleration into no acceleration.
• Good reason has to be defined and the definition has to include the changes an acquirer actually makes: reporting line, scope of duties, base compensation, and required relocation beyond a stated distance. Without it, the second trigger is in the acquirer's gift.
• An acquirer prices unvested founder equity as retention budget. Full single-trigger acceleration removes the retention and acquirers routinely take the value back out of the purchase price, so the founder pays for it once and receives it once.
• Double trigger is the structure that survives diligence because it pays only in the case founders actually fear: the deal closes and they are removed. That is also why it is the structure an acquirer will accept.

The no-shop is a deadline for one side only unless the calendar is in it

Most of a term sheet is non-binding; the no-shop, confidentiality and expense provisions usually are not. An exclusivity period with no corresponding commitment on the investor's side transfers all timing leverage, because the company cannot run a process and the investor has no date to meet.

Field	Value
Formula	No arithmetic in the clause. The test is whether the exclusivity period is longer than the sum of the steps that have to happen inside it. All day counts below are illustrative inputs, not standard periods
The exclusivity period	A stated number of days from signing the term sheet, say 45
What has to happen inside it	Confirmatory diligence; documentation; charter amendment and stockholder consent; any protective provision consents; a pool increase approval; signature and funding
A worked calendar	Diligence 20 days, documents 20 days in parallel from day 10, consent solicitation 10 days, closing mechanics 5 days: 45 days with no slack at all
Where it goes wrong	A single consent that has to be chased, or a diligence request that arrives on day 30, pushes the closing past the expiry - at which point the company has spent its exclusivity and has no signed deal
The counterweight	Exclusivity in exchange for a defined closing date, with the period lapsing if the investor has not signed by it. Reciprocal, short to draft, and the standard answer

• A no-shop is the only clause in a non-binding document that a company can breach, so it is worth reading with the care given to a definitive agreement rather than the care given to a term sheet.
• The productive negotiation is not the length. It is a lapse provision, an obligation to complete diligence by a stated date, and an express right to respond to unsolicited inbound interest.
• Where a round has several investors, exclusivity signed with a lead that has not syndicated is exclusivity against a deal that may not exist. Ask what is still conditional on other parties before signing it.
• Expenses and confidentiality survive whether or not the deal closes. An expense reimbursement with no cap, in a deal that fails, is a real liability created by a document described as non-binding.