Startup Terms Glossary
What is a Most Favored Nation Clause?
A most favored nation clause is a portion of an international trade agreement. It exists to prohibit unfair trade negotiations between nations who are a part of the World Trade Organization (WTO). This clause states that any concession, special right, or privilege that is extended to one country in a trade agreement must be extended to all countries in the WTO.
For startups, this is often seen in financing documents like SAFE Notes , Convertible Notes , etc., where if a lter investor gets better terms than an earlier investor, they will get the more favorable terms.
Most Favored Nation Clause Examples
Examples of characteristics of a most favored nation clause include:
- Example 1. Startup investor's discount increases due to terms given to later investor
- Example 2. Investor's SAFE Note terms change because of more favorable terms in later financing round
- Example 3. Convertible Note holder's terms improve due to better terms in later raise
Check out this article about a most favored nation clause.
ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.
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Christian Davila received his Juris Doctorate from St. Mary’s University and becoming a member of the State Bar of Texas in 2013. Before law school, he studied at Texas A&M International University (TAMIU), and participated in multiple programs across various fields of study, including the University of Texas Medical Branch-School of Medicine’s “Early Medical School Acceptance Program,” and the Hispanic Association of Colleges & Universities’ “National Internship Program” at the Library of Congress in Washington, D.C. Christian’s legal experience includes criminal law (both prosecution and defense), family law, transactional law, business litigation, real estate litigation, and general civil litigation. Christian was previously in-house counsel for a multi-million dollar apartment construction and management company, handling all property acquisition, document drafting, negotiations, and litigation. Christian is a former member of the American Association for Justice (formerly the Association of Trial Lawyers of America), and he has been distinguished by the National Trial Lawyers as one of their TOP 40 Civil Plaintiff attorneys in Texas UNDER 40 years old. He likes weightlifting, reading comicbooks, and being silly with his kids in his spare time.
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