Legal & Compliance
Drag-Along Provision
A clause that allows majority shareholders to force minority shareholders to join in a sale of the company on the same terms.
A drag-along provision gives controlling shareholders (typically founders and major investors holding a specified supermajority) the right to compel all other shareholders to participate in a sale transaction. This prevents minority shareholders from blocking or holding up an acquisition that the majority has approved. The provision typically requires that minority shareholders receive the same price and terms as the majority.
In Practice
When the acquisition offer came in at $500M, the drag-along provision allowed the board and 75% of shareholders to compel the remaining 25% to sell, preventing any holdouts from blocking the deal.
Why It Matters
Drag-along provisions are essential for clean exits. Without them, a small minority shareholder could block a beneficial acquisition, holding the entire company hostage.
VC Beast Take
Drag-along rights are the corporate equivalent of 'we're all going to the restaurant the group picked.' Necessary for functioning governance.
Related Concepts
Further Reading
How to Negotiate Your Term Sheet: A Founder's Playbook
A tactical guide to negotiating your startup term sheet — which terms matter most, where to push back, and how to protect your interests without killing the deal.
How to Read a Term Sheet: A Practical Breakdown
Term sheets aren't designed to be readable. Here's a section-by-section guide to what matters, what's standard, and what should make you walk away.
Term Sheet Explained: Every Clause Founders Must Know
Term sheets are dense, jargon-heavy, and consequential. Here's a founder-friendly breakdown of every major clause and what it means for your company.
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