In order to protect investors, these rights are often associated with the right of pre-emption, a separate right that gives the investor the opportunity to buy the founder`s shares if he decides to sell to a third party. The right of pre-emption and the right of co-sale (“ROFR/Co-Sale”) cooperate to prevent a founder or regular shareholder from selling shares without the company and investors being allowed to buy the shares or participate in the sale of the shares. Below is a typical definition of term sheet. A venture capitalist`s decision to invest in a company often relies heavily on the strength of the technical and managerial experience of the founders and management. He does not want these people to sell their shares in the company, while it remains an investor. Therefore, investors often require a ROFR as well as co-sale/tag along rights on each share sale by a key founder or manager. In fact, they can sometimes demand a ban on founders and key managers selling shares for a certain period of time. Important note that ROFR and co-sale rights may be reserved for large investors. Definition A covente contract (covente rights or provision tag along) in a roadmap gives a group of shareholders the right to sell its shares if another group does so, under the same conditions. In the case of venture capital transactions, these clauses are generally used to ensure that investors can participate on a pro rata basis in all sales of founders or other shareholders exceeding a certain percentage.
Covente rights are usually associated with the right of pre-emption. Co-sale rights assume that ROFR rights have not been exercised and only occur after the transmission of ROFR rights. The venture capital firm has a ROFR, which allows it to buy all the founders` shares for $15 each if they wish and remove SUC from the deal. The right of pre-emption and the co-founder contract govern how and to whom founders and employees can sell their shares. On the other hand, if many of your investors use their co-sale rights, you can expect a dramatic change. A new investor with a majority can make a lot of weight. This weight continues to increase if he or she receives even more co-sale shares. If the investor receives the most shares of your company, that investor can replace all directors, partners, managers and other executives as often as they wish. Yet this is only the most pessimistic scenario. It`s not uncommon for preferred investors to require startup creators to enter into a co-sale deal. Co-sale rights give investors the right to participate in a transaction when founders sell their shares to third parties. Co-sale rights, also known as tag along rights, allow investors to sell their shares under the same conditions as the founders….