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

Related Terms

Beginner

equity financing

Raising capital by selling ownership stakes in the company rather than borrowing money. It's the fundamental bargain of venture capital: you get money now, investors get a piece of your future success (or failure).

🚀 Startup / VC

Advanced

tag-along rights

Provisions allowing minority shareholders to join a sale if majority shareholders exit—the friendlier sibling of drag-along rights. It's protection ensuring you can't get abandoned while insiders cash out.

🚀 Startup / VC

Advanced

shotgun clause

A buyout mechanism where one co-founder can offer to buy out another at a specific price, and the recipient must either sell at that price or buy the offerer's shares at the same price. The nuclear option for irreconcilable founder disputes.

🚀 Startup / VC

Intermediate

diluted

The soul-crushing moment when a founder's ownership percentage shrinks because the company issued more shares to new investors. It's weaker coffee, but for equity—you still own shares, they're just worth relatively less of the pie. Every funding round brings this special joy, where you simultaneously celebrate getting money and mourn losing control.

🚀 Startup / VC

Intermediate

lever

A mechanical advantage device that pivots on a fulcrum to multiply force, or in startup parlance, anything you can use to do more with less. Every MBA in Silicon Valley thinks they've found a "lever" to pull, usually right before asking for $5M in seed funding. Physics teachers hate how loosely VCs use this term, but hey, at least someone's paying attention to simple machines.

🚀 Startup / VC

Intermediate

information rights

Contractual provisions granting investors access to a startup's financial statements, board minutes, and other operational data. Essentially, the legal right to know how badly founders are spending their money.

🚀 Startup / VC

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