drag-along rights

Definition

A contractual provision that lets majority shareholders force minority investors to join in selling the company, whether they like it or not. Democracy dies in cap tables.

Example Usage

Thanks to drag-along rights, the seed investors had no choice but to accept the acquisition offer, even though they thought the company was worth twice as much.

Origin

Standard corporate law terminology that became critical in VC term sheets during the 1990s tech boom

Fun Fact

Drag-along rights once forced early Facebook investors to sell their shares during an acquisition attempt—had the deal gone through, they would have missed billions in later value.

Source: Corporate law and NVCA model term sheets

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