pay-to-play provision

Definition

A punitive clause forcing existing investors to participate in future rounds or lose their special privileges—the venture capital equivalent of 'put up or shut up.' Popular after market downturns when companies need to separate real believers from fair-weather friends.

Example Usage

The pay-to-play provision meant that investors who didn't participate in the bridge round lost their pro rata rights and board seat.

Origin

Term emerged during the 2001-2003 venture capital downturn as firms sought to force commitment from existing investors

Fun Fact

Pay-to-play provisions became so aggressive during the dot-com bust that some converted investors' preferred stock to common if they didn't invest—essentially erasing their special rights.

Source: Venture capital term sheets and NVCA documentation

Related Terms

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equity crowdfunding

Raising capital from numerous small investors through online platforms, democratizing access to startup investment and the opportunity to lose money on early-stage companies. Kickstarter, but instead of getting a T-shirt, you get illiquid securities.

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Advanced

non-participating preferred

Preferred stock that must choose between taking its liquidation preference OR converting to common and sharing the remaining proceeds—can't do both. The slightly-less-greedy version of investor terms.

🚀 Startup / VC

Beginner

missionary founder

An entrepreneur driven primarily by solving a problem or advancing a cause rather than financial gain. They're the idealists who actually believe their mission statement.

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capital call

The formal demand from a general partner to limited partners to wire their committed funds, usually with 10-30 days notice and an implied "or else" hanging in the air. It's how venture funds move committed money from promised to deployed.

🚀 Startup / VC

Advanced

anti-dilution provisions

Protective clauses that let early investors maintain their ownership percentage when future rounds price lower, punishing founders for failing to maintain perpetual hockey stick growth. Comes in weighted-average and full-ratchet flavors of pain.

🚀 Startup / VC

Intermediate

venturer

A fancy term for someone who invests in or undertakes risky business ventures, particularly in the startup ecosystem where optimism meets capitalism. These bold souls throw money and energy at unproven business ideas, hoping to strike gold before bankruptcy strikes them. It's like being an explorer, except instead of discovering new lands, you're discovering new ways to burn through Series A funding.

🚀 Startup / VC

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