Price & valuation
Most favoured nation clause
Also called MFN, Most favored nation
A provision entitling you to adopt the better terms of any subsequent convertible instrument the company issues before your own converts.
In plain English
An MFN says: if you give someone else a better deal on the same kind of paper, I can take it too. In practice it means that if you hold a SAFE at a $10m cap and the company later issues SAFEs at $6m, you may elect to switch your terms to the $6m cap.
It is protection against the specific unfairness of investing early and then watching a later, lower-risk investor get a better price. Without it, an angel who backs a company at its most fragile moment can end up paying more than someone who waited for the first customers to appear.
MFNs come in two useful strengths. A basic one lets you adopt the other instrument's economic terms — cap and discount. A full one lets you adopt the entire instrument, including rights such as pro-rata or information rights. The second is better and is worth asking for by name.
The clause carries an obligation the company frequently fails to honour: notifying you when a triggering instrument is issued. A right you do not know has been triggered is not a right. This is the most common way MFNs quietly fail.
What it means for your cheque
For a small cheque an MFN is close to free protection and one of the easiest asks in angel investing. Founders rarely resist it, because at signing it costs nothing and they do not expect to issue cheaper paper later. It is worth requesting on every uncapped or high-cap instrument you sign.
The uncapped-with-MFN structure is the one place a discount-free, cap-free instrument can be defensible: you agree to pay whatever the next real negotiation produces, which is a genuine deal rather than a blank cheque. Even then, insist on written notification within a set number of days.
Do the arithmetic
An MFN triggered by a cheaper later SAFE
You invest $40,000 on a SAFE at a $12m post-money cap with an MFN. Six months later the company, needing money quickly, issues SAFEs at a $7m post-money cap.
| Your original cap | $12,000,000 |
|---|---|
| Ownership at the original cap | $40,000 ÷ $12m = 0.33% |
| The later SAFE's cap | $7,000,000 |
| You elect the MFN and adopt it | |
| Ownership at the new cap | $40,000 ÷ $7m = 0.57% |
| Increase in your position | about 71%, for signing one election notice |
The clause was worth more than any cap negotiation you could have won at signing — but only because you found out the later SAFE existed. That is the whole game with MFNs.
At the table
What to negotiate
- Ask for a full MFN covering all terms, not just the cap and discount.
- Require written notice within a fixed period — 10 or 20 days — of the company issuing any convertible instrument, with copies of the documents.
- Check whether the MFN survives to conversion or expires on some earlier event.
- Establish whether it covers instruments issued to anyone, or only to investors in the same round.
- On an uncapped instrument, treat an MFN as mandatory rather than a nice extra.
Most favoured nation clause: common questions
Does an MFN let me improve my terms at the priced round?
Do I have to take the new terms?
How would I ever find out the MFN has been triggered?
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