Why it matters
A drag-along clause exists for good reasons — it stops a small holder from blocking a real exit. But without a sensible trigger threshold (typically a majority of common, or a majority of the board including a founder), it lets the preferred stockholders alone force a sale on their timeline, at a price that may favour their preference structure over your common equity. Combined with a 2×+ preference, a drag can deliver the company to acquirers at a price where you walk away with zero.
How to negotiate
Require approval thresholds: majority of preferred AND majority of common AND board approval including at least one founder director. Add a minimum-price floor tied to the most recent valuation. The drag is acceptable when it is symmetric; it is dangerous when it is unilateral.
Example language
How this clause typically appears in a term sheet. Read it carefully — predatory language is often buried in routine paragraphs.
In the event the holders of a majority of the Preferred Stock approve a Sale of the Company, all other stockholders shall vote in favour of and shall not exercise any dissenters' rights with respect to such Sale.
TURNSHEET provides intelligence, not legal advice. This page describes typical market behaviour and common negotiation tactics; your specific deal may have nuances that change the analysis. Always review your term sheet with qualified legal counsel before signing.