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  • Term

    Main definition

  • Pay-to-Play

    A provision in the investment documents (usually in the charter or certificate of designation with respect to the preferred stock series issued in the transaction) imposing sanctions on investors who do not participate (by purchasing their full pro rata share) in future, usually down round, equity financings. If the investor does not "play", it suffers specific adverse consequences, including, for example, automatic conversion to common stock or a "shadow" (less favorable) preferred stock, loss of the right to participate in future funding rounds, loss of anti-dilution protections, loss of veto rights and related protective provisions, and/or loss of board representation rights. Some pay to play provisions are structured to provide rewards and incentives (including superior economic securities, rights and features) to those investors who do participate (by purchasing their full pro rota share) in future (down round) financings.

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