Glossary
Pay-to-Play
A clause requiring investors to participate in future rounds (at their pro-rata) or lose specific rights — typically anti-dilution protection.
By Amit Tyagi, Fitoor Capital · AletheiaAI Glossary
Definition
Pay-to-Play is a clause in a Shareholders Agreement requiring existing investors to participate in future financing rounds at their pro-rata share — or lose specific rights (most commonly anti-dilution protection, sometimes converting their preferred to common stock).
The clause is founder-friendly: it prevents investors from getting full anti-dilution protection without continuing to put in capital at subsequent rounds. It also gives founders leverage in down-round negotiations because non-participating investors face automatic conversion or stripped rights.
India Context
Pay-to-play is increasingly common in Indian Series B+ term sheets in 2026, less common at seed/Series A. The clause typically requires investors to participate at 100% of pro-rata; lesser participation triggers proportional loss of rights.
Indian investors push back on pay-to-play because it constrains their portfolio flexibility — they can't choose to under-fund certain bets without consequences. Founder leverage to include pay-to-play increases in competitive rounds.
Example
Series B term sheet includes pay-to-play: each existing investor must invest their pro-rata in the next round (or any down round). An angel from the seed round holds 3% (pro-rata = ₹15L of the new ₹5Cr Series C). If the angel passes, their CCPS converts to common stock — losing 1x liquidation preference and anti-dilution protection.
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