Deal Terms
Last updated
Quick Answer
A clause ensuring an investor receives terms at least as favorable as those given to any other investor in the same or subsequent round.
A Most Favored Nation (MFN) clause guarantees that if the company offers better terms to a later investor, the MFN holder can adopt those improved terms. In venture, MFN provisions are most common in SAFE agreements, where early SAFE investors may receive MFN rights so they benefit if later SAFEs have lower valuation caps or better terms.
In Practice
An early investor signs a SAFE with a $10M cap and MFN clause. The company later issues SAFEs at a $7M cap. The MFN clause allows the first investor to adopt the $7M cap, getting more favorable conversion terms.
What good looks like
Why It Matters
MFN clauses protect early investors from being disadvantaged by better terms offered to later investors. They're standard in multi-SAFE raises and important for maintaining fair treatment.
VC Beast Take
MFN clauses sound fair in theory but can create unintended consequences. They can actually discourage future investors from offering better terms, knowing existing investors will automatically get the same benefits. We've seen deals stall because founders were afraid to give new investors better terms due to MFN obligations. Sometimes it's better to negotiate specific protections rather than blanket MFN rights.
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What is a SAFE note and how does it work?
A SAFE (Simple Agreement for Future Equity) is an investment instrument where an investor gives a startup money today in exchange for the right to receive equity at a future priced round, typically at a discount or capped valuation.
What is a side letter in venture capital?
A side letter is a private agreement between a VC fund's GP and a specific LP that grants that LP special terms not available to other investors — like lower fees, co-investment rights, or additional reporting.
A Most Favored Nation (MFN) clause guarantees that if the company offers better terms to a later investor, the MFN holder can adopt those improved terms.
Understanding Most Favored Nation is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.
Most Favored Nation 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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