Deal Terms
Material Adverse Change
Last updated
Quick Answer
A significant negative event that fundamentally alters the value or prospects of a company, potentially voiding agreements.
What it is
A Material Adverse Change (MAC) clause in venture term sheets or acquisition agreements allows a party to withdraw from a transaction if a significant negative event occurs between signing and closing. What constitutes a MAC is often heavily negotiated — market-wide downturns are typically excluded, while company-specific events (loss of key customers, regulatory actions, fraud) are covered.
In Practice
Between signing a term sheet and closing, a startup loses its largest customer (40% of revenue). The VC invokes the MAC clause and renegotiates terms at a 50% lower valuation.
Operational context
What good looks like
The term is tied to a real workflow, not just a definition.
Ownership, timing, and evidence are clear.
The reader can tell what decision the concept supports.
Related terms point to the next useful explanation.
Why It Matters
MAC clauses create optionality for investors but uncertainty for founders. Understanding what triggers a MAC and negotiating reasonable exclusions is critical for protecting both sides.
VC Beast Take
MAC clauses became the new battleground during COVID-19, with both sides learning expensive lessons about what actually constitutes 'material' and 'adverse.' Smart lawyers now spend more time defining these terms upfront rather than leaving them vague. The pandemic taught everyone that even seemingly bulletproof deals can unravel when MAC provisions are too broad or too narrow.
Related tools and reading
Term Family
Related concepts
Frequently Asked Questions
What is Material Adverse Change in venture capital?
A Material Adverse Change (MAC) clause in venture term sheets or acquisition agreements allows a party to withdraw from a transaction if a significant negative event occurs between signing and closing.
Why is Material Adverse Change important for startups?
Understanding Material Adverse Change is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.
What category does Material Adverse Change fall under in VC?
Material Adverse Change falls under the deal-terms category in venture capital. This area covers concepts related to the financial and legal terms that define investment agreements.
Sources & References
New VC funds, from the SEC
Know which VC funds filed with the SEC this month, before anyone announces them
Every new venture fund files a Form D before it closes. We read every filing, match it to the firm behind it, and send you what changed.
The VC Beast Brief
Know which VC funds filed with the SEC this month
The monthly New VC Funds Filed report and the Form D Radar brief, read from every Form D the SEC receives. Free.
Related Tools
Archstone
Run your fund like an institution.