Definition A pay-to-play provision in a preferred stock wholesale converted to common stock. requires investors to participate, at the company’s request, in subsequent financing rounds on a basis. If an investor does not participate when requested, they face consequences that can range from losing some privileges like protections to having their
Pay-to-play provisions are extremely rare in technology investment deals. But they are absolutely common in biotechnology or life sciences deals because those types of companies require such a large amount of capital to get a product to market. Early investors in biotechnology or life sciences companies need to be prepared to pony up cash in future financings and go the distance.
Learn more from the Startup Company Lawyer blog post, “What is a pay to play provision?”