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Q

What does a “Most Favored Nation” clause in a convertible note do?

A

A most favored nation clause, referred to as a MFN clause, is an unusual convertible note term that allows the convertible note holder to elect to inherit any more favorable terms that are offered to any subsequent investors following the original investor’s investment and prior to a next equity round. The MFN clause is sometimes seen on uncapped convertible notes as a way to balance a company’s desire not to cap the note, and an investor’s concern that a capped note may subsequently be issued.

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