Pay-to-Play
A term that requires existing investors to keep investing in future rounds, or lose some of their rights and preferences, often converting their preferred to common if they sit out.
Why it matters
Pay-to-play shows up most in tough rounds, pushing investors to keep supporting the company or step aside. It can clean up a cap table clogged with passive investors, but the mechanics are worth understanding early.
For example
In a tough round with a pay-to-play term, an existing investor who declines to put in more money has its preferred shares converted to common.
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Related terms
Also in Starting Up
See how founders actually handle this on Raising your first round, part of the Starting Up hub.
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