Term Sheet: Drag Along

If you are faced with a drag-along, your ownership position will determine whether or not this is a relevant issue for you.  An M&A transaction does not require unanimous consent of shareholders (these rules vary by jurisdiction, although the two most common situations are either majority of each class (California) or majority of all shares on an as converted basis (Delaware)), although most acquirers will want 85% to 90% of shareholders to consent to a transaction.  So – if you own 1% of a company, while the VCs would like you to sign up to a drag-along, it doesn’t matter that much (unless there are 30 of you that own 1%.)  Again – make sure you know what you are fighting for in the negotiation – don’t put disproportionate energy against terms that don’t matter.

 

(Full Post: http://www.feld.com/wp/archives/2005/02/term-sheet-drag-along.html)


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Brad Feld

Brad Feld has been an early stage investor and entrepreneur since 1987. He is currently a Managing Director at Foundry Group. Prior to co-founding Foundry Group, he co-founded Mobius Venture Capital and, prior to that, founded Intensity Ventures. Brad is also a co-founder of TechStars.

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Filed Under:
Collection: Funding
Category: Term Sheet Terms