Deal Terms
Material Adverse Change
A significant negative event that fundamentally alters the value or prospects of a company, potentially voiding agreements.
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.
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.
Related Concepts
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