What is pay-to-play financing?

Funds/SPVs may be confronted with “pay-to-play” financings. In these financings, vehicles face negative consequences (described below) if they do not invest a defined amount. The defined amount required to be invested is typically based on the Fund/SPV’s pro rata portion of a target financing amount.

 

The penalties for not participating are specific to each “pay-to-play” financing. One common penalty is for the Fund/SPV’s existing preferred stock to be converted to common stock. There are a number of other forms: sometimes a financing where the new investors take a large liquidation preference multiple may be the functional equivalent to a pay-to-play financing. The mechanics of each pay-to-play financing will be outlined in the rights offering.

 

Most pay-to-play financings require Funds/SPVs to return an indication of interest confirming their participation, investment amount, and investing vehicle by a specific deadline. 

 

If the Fund/SPV is AngelList-advised, AngelList/Belltower will confirm the Fund/SPV’s participation through the Fund Lead approval process and return the indication of interest form on the Fund/SPV’s behalf. 

 

Self-advised vehicles will return their completed indication forms directly to the Portfolio Company. 

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