What is “pay-to-play”?
A “pay-to-play” provision may be included in the terms of the preferred stock. A “pay-to-play” provision typically requires an existing investor to participate (or “pay”) in a subsequent investment round to retain certain rights (or “play”) or to avoid facing certain negative consequences. For instance, an investor’s failure to purchase its pro-rata portion of a subsequent investment round may result in conversion of that investor’s preferred stock into common stock or into another less valuable series of preferred stock with reduced rights.
