Deal Terms
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Quick Answer
The right of investors to compel a company to register their shares with the SEC for public sale, typically exercisable after an IPO.
Demand registration rights give investors the power to force a company to file a registration statement with the SEC, enabling the investors to sell their shares publicly. Unlike piggyback registration rights (which allow investors to join a company-initiated registration), demand rights put the investor in the driver's seat. They're typically limited to a few exercises, available only to holders of significant positions, and subject to various conditions.
In Practice
The Series C investors exercised their demand registration rights 18 months after the IPO, compelling the company to file an S-3 registration statement that enabled them to sell $150M in shares in a secondary offering.
Why It Matters
Demand registration rights provide investors with an independent path to liquidity, separate from the company's own plans. They're particularly important for later-stage investors who need exit options independent of management decisions.
VC Beast Take
In practice, demand registration rights are rarely exercised because the threat alone is usually enough to prompt cooperation. Companies typically prefer to work with investors on coordinated liquidity events rather than deal with forced registration proceedings.
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Demand registration rights give investors the power to force a company to file a registration statement with the SEC, enabling the investors to sell their shares publicly.
Understanding Demand Registration Rights is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.
Demand Registration Rights falls under the deal-terms category in venture capital. This area covers concepts related to the financial and legal terms that define investment agreements.
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