An MFN clause is a contractual provision granting an investor the right to automatically receive any better terms offered to subsequent investors. Also called a "most-favored-nation clause," "most-favored-nations," or "MFN protection," it applies in the same financing round or, in some structures, in future rounds. It is used as protection for early investors who don't want to be disadvantaged versus later investors who negotiate harder or get more favorable structures. It is one of the most commonly granted and least carefully tracked provisions in venture financing, and the source of significant downstream complications when companies forget what they've granted.
The structure: investor signs a Subscription Agreement or side le...