Why it matters
MFN clauses are common in convertibles and SAFEs and reasonable there. Where they get problematic is in priced rounds, particularly when worded broadly enough to apply to operational terms in addition to economic ones. An aggressive MFN means that every future financing forces a renegotiation: any concession you make to a new lead automatically rolls back to the existing holder. The practical effect is to lock in the most aggressive terms ever granted, in perpetuity, with the original investor.
How to negotiate
Limit MFN to economic terms (price, preference, anti-dilution formula, dividend rate) — not to governance, board, or information rights. Set a sunset (typically the next financing). Require the holder to elect MFN within a tight window (30-60 days) so it doesn't sit as an open option indefinitely. Carve out side-letter rights granted to strategic investors with non-financial value (e.g. customer commitments) — these are not the kind of preferences MFN is designed to capture.
Example language
How this clause typically appears in a term sheet. Read it carefully — predatory language is often buried in routine paragraphs.
Should the Company subsequently grant any other investor preferential rights (whether economic, governance, or otherwise) on terms more favourable than those granted hereunder, the Investor shall be entitled to elect the same.
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.